Bridging Loans

  • Up to 100% of Purchase Price
  • From £10,000 Upwards
  • Open or closed bridging
  • 5* service

Bridging Loans

  • Up to 100% of Purchase Price
  • From £10,000 Upwards
  • Open or closed bridging
  • 5* service
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Author: Carl Shave - CEO and co-founder
Last updated: May 24th, 2022

What is a Bridging Loan?

For anyone who is unsure, a bridging loan effectively works to ‘bridge the gap’ in finances that you might have. For example, the interval between two transactions, typically the buying of one house and the selling of another.

Bridging Loan Advice

As well as helping you find competitive mortgages, insurance and other financial products from our leading panel of providers, we also specialise in a unique product called bridging loans.

A bridging loan, or bridging finance as it’s also known, is a short-term funding option that is used to ‘bridge’ the gap between a payment going out and money coming in. Bridging loans are designed to help people complete the purchase of a property that would otherwise not be possible.

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How do bridging loans work?

Bridging loans work by providing upfront funding to complete on a project or some form of property purchase before any mainstream credit funding can be secured against the same.

The term ‘bridging’ is used, as effectively you are bridging the time frame between the two lines of credit.

As an example, if you were to purchase a property at an auction, then you may find yourself in a position where you need the availability of funding quickly in order to complete on your purchase. Mainstream traditional funding methods will nearly always take a lot longer to arrange. In this situation you could get a bridging loan for the short term, complete your purchase, while at the same time arranging more traditional mainstream funding. Once you secure your mainstream funding, you could then use this money to repay the bridging loan.

You could also use a bridging loan to purchase a property that needs development or is dilapidated. Depending on the condition of the property, a mainstream lender may not be willing to lend on it. Again, as above you could get a bridging loan to purchase the property in its current state, renovate it to a standard that is acceptable to a mainstream lender and then apply for mainstream funding in order to repay the bridging loan.

When looking at the above situations, the ‘exit strategy’ to repay the bridging loan is securing alternative mainstream funding. A bridging loan lender will not always require you to secure alternative funding to repay their loan, but they will require you to have a strong exit strategy. This could be the sale of the property you are purchasing or the sale of alternative assets.

Another point to note is that bridging loans are almost always taken on an ‘interest only’ basis and while you can make repayments on a monthly basis, the lenders are happy for you to make no repayments for the duration of the loan and roll the interest up and repay it all at the same time as settling the loan.

Bridging loans are a very specialist area of lending and as such the lenders and their products aren’t always visible to the less experienced eye. While it is possible to arrange a bridging loan directly with a provider it is not advisable to do so, due to the complex nature and the need for careful consideration of an exit strategy, especially if the strategy involves securing mainstream funding.

Bridging loan lenders usually prefer to work with experienced brokers who can assess the feasibility of a proposal to borrow, and repay the bridging loan.

At Just Mortgage Brokers our advisers have access to some of the most well-known bridging lenders along with some of the smaller more specialist niche bridging loan lenders. This range of lender accessibility means that you can be sure that our advisers will place your case with some of the best bridging loan lenders that are suitable for your individual circumstance. Get in contact with one of our bridging loan experts today to find out more.

Bridging loans by their very nature are a niche type of lending and as such the rates are always higher than that of a high street bank or building society. The interest is also charged on a monthly basis.

While bridging lenders will have published rates, this can change depending on the individual circumstance of a case. The rate is of course always agreed upfront before any agreements are signed.

While trying to obtain the best bridging loan rate, it is important to look at the overall package to assess the ‘true cost’ of the product. Bridging loans will nearly always have fees attached and it is important to take all this into account as well as the length of time you plan to keep the loan for, before deciding if it truly is the best bridging loan rate available to you.

Contact one of our advisers today to see how they can help and ensure that you are getting the best bridging loan rate for your individual circumstance.

In order to settle a bridging loan you will be required to repay the original funds plus any rolled up interest and fees to the bridging loan lender.

Prior to the lender agreeing and releasing the monies for the bridging loan, they would have required you to have a strong exit strategy to ensure the monies would be available to settle the bridging loan when required. This could have been agreed as selling the asset or property the bridging loan was secured on or by re-financing/ re-mortgaging the same asset to release the equity. Alternatively you may have agreed to sell an alternative asset or settle by way of other funds that were to become available in the short term.

Either way, once you are in a position to exercise your exit strategy, you will be expected to use the funds to settle your bridging loan. The term of your bridging loan is usually limited for a short period of time so any exit strategy would need to come to fruition within the timeframe for you to be able to fulfil your agreement to settle your bridging loan in a timely manner.

The assessment for a bridging loan is in essence not much different to that of securing a conventional mortgage. Lenders are going to want to know about you, the applicant along with details of the property or asset you are looking to secure the bridging loan on. Details will include but are not limited to:

  • Your Credit Profile. A good credit profile with no adverse information will always put you in good stead to secure a good bridging loan rate.
  • Proof of ID and Address. This will be the usual address proof and photo ID such as a passport or driving licence.
  • A Valuation Report. This will give details of the property or asset you want to secure the bridging loan on. This will include its current value and the value at the end of any proposed development. If you are using extra assets over and above the property or asset you are purchasing then the lender may require you to pay for the extra valuation reports. Most lenders will have their own preferred panel of Surveyors that they will require you to use so it is unlikely you will need to get a report carried out before approaching a lender with proposal.
  • Details of Your Exit Strategy. This could include written details of the Schedule of Works for the development work proposed or if you are arranging alternative finance then an Agreement in Principle from the onward lender. If you are using alternative means such as inheritance or investments then details of this will be required at the time of application along with proof that the monies will be available within a set time frame.
  • Property Experience. Information about your experience in dealing with property will be required. Having no experience in property doesn’t mean you can’t get a bridging loan. It just means the lender will scrutinise the proposal in more detail.
  • The Size of Your Deposit. As with any lending, the assessment to lend is based on the risk to the lender. A larger deposit will not just make you a better ‘risk’ but also help you secure a better interest rate.
  • Evidence of Income. Some lenders may require proof that you have alternative income to help cushion any unexpected costs that arise. They may ask to see bank statements as evidence.

As bridging loans are very niche in their nature, every case is assessed on an individual basis. To get a clearer understanding of exactly what you may need to get a bridging loan, why not start by speaking to one of our in house advisers at Just Mortgage Brokers.

Bridging to the value of 100% of the property or asset is available but is not as straight forward as it sounds.

While a lender will be happy to lend 100% (LTV) of the value of the property or the asset you are purchasing, they will require you to make available additional assets as security to offset the risk to the lender. This will naturally  bring additional risk to you the borrower as if you are unable to settle the bridging loan within the agreed timeframe, then you could end up having several assets repossessed at the same time in order to repay your bridging loan.

Most bridging lenders will require you to have a deposit of 25-30% of the value of the property or asset you want to secure the bridging loan on. This will usually include the rolled up interest and therefore is categorised as the Gross Loan Amount.

If you do not have the required deposit amount then bridging loan lenders can usually take security over other property or assets you are willing to include.

A lot will also depend on your exit strategy. If it is deemed secure and strongly viable then you are likely to be able to secure a product which requires a smaller deposit. While in the same situation if your exit strategy is deemed as not so strong and secure then a lender may require a deposit of between 40-50%.

To find out an indicative idea of how much deposit you may need, speak to one of our in-house brokers who can help you get started.

If a family wants to buy a new home before the sale of their existing property has gone through, they might choose to use bridging finance to ‘bridge’ the short-term shortfall in their finances. Alternatively, bridging loans can be used to access a short-term loan, for what can be relatively large amounts of money, in a range of pressing circumstances.

Bridging loans are predominantly used by landlords and property developers, particularly those buying a commercial or residential property at auction. In this case, the property will need to be paid for in full within a short space of time. The bridging loan allows landlords and developers to complete the purchase while they put mortgage arrangements in place.

  • Ltd company loans
  • Employed, self-employed  or retired
  • NO age restrictions

Given the banks’ current reluctance to lend, some borrowers are also using bridging finance as an alternative to mainstream lending. Although a bridging loan can represent a viable alternative in certain circumstances, borrowers should be aware that interest rates can be high and substantial administration fees may be added on top. For this reason it’s essential you plan your exit strategy carefully, i.e. know exactly how you’re going to repay the loan.

What are the benefits of bridging loans? 

These easy-to-access financial products are ideal for borrowers who need finance fast. When time is of the essence and your dream property is on the line, while your money is tied up in your old property, bridging loans ensure you do not “miss the boat”, removing much of the stress and uncertainty from the tricky cycle of selling and buying.

Bridging loans are also very useful for non-residential buyers. As a way to source auction finance for those who make their living through property, bridging loans present a speedy way to pounce on promising properties when the time is ripe. For those seeking short-term business loans, bridging loans may also offer a way to move on to greener pastures and keep enterprises ticking over while loose ends are tied up at old premises.

What are the risks of using bridging loans?

There are a few risks to be aware of when choosing bridging finance. Like most short-term finance options, interest rates are often relatively high and admin fees are typically applied. It’s important that anyone using a bridging loan is aware of all of the charges and the level of interest they will be expected to pay, on top of their actual loan amount, before proceeding.

It’s also important to know exactly how you will repay your bridging loan. Missed payments on short-term financial products can quickly spiral into penalty fees and rising repayments. Having a concrete idea of precisely when and how you will be able to repay, and agreeing to realistic terms, will protect you from the potential risk of growing debt which, in very serious cases, can result in you losing your property.

Many borrowers now take on bridging loans to cover the cost of purchasing a property over the short term, with a view to later arranging a mortgage. Mortgages can take time to arrange and mainstream banks have been especially slow to lend in recent years. When you need to purchase property quickly, bridging loans can provide the funds to do so while the “nitty gritty” is ironed out with your future mortgage provider.

However, while the majority of borrowers are able to successfully purchase property with a bridging loan, then make the switch to a mortgage, there are risks involved in “banking” on mortgage approval. If you use bridging finance to purchase a property, intending to later mortgage it, there is a risk that your mortgage may not be approved. This will leave you with a substantial, high-interest, short-term bridging loan and you’ll probably be without the finance to repay it. For this reason, it is essential that you only use bridging finance for this purpose if you are 100% certain of receiving mortgage approval.

What are closed bridging loans?

Bridging loans are used exclusively when borrowers face a short-term need for finance, “tiding them over” until a better source of long-term finance becomes available. Typically, this source will stem from the sale of an old property or the completion of a mortgage agreement on a new property.

For some borrowers, it is possible to know precisely when these funds will become available. Some people will have a completion date set in stone on an old property, others will know exactly when their mortgage will be agreed. In these cases, it’s possible to set a fixed date for the repayment of a bridging loan. When a concrete repayment date is decided and agreed upon, the financial product used is known as a closed bridging loan.

Closed bridging loans often carry lower rates of interest and are more likely to be accepted by lenders, compared to open bridging loans which we will discuss below. That’s because closed bridging loans give lenders a greater degree of certainty and confidence in the repayment. If borrowers do not meet the terms which have been agreed as part of a closed bridging loan, however, the financial penalties can be very serious.

What are open bridging loans?

Open bridging loans, on the other hand, are used by borrowers who are not certain about when their expected future finance (from the selling of a property or agreement of a mortgage) will become available. This situation may occur for many reasons, from legal hold-ups with the sale of a house, to mortgage providers who drag their heels.

In such cases, it’s possible for borrowers to use an open bridging loan which doesn’t have a set repayment date. This allows borrowers more flexibility and ensures they avoid substantial penalties if circumstances prevent them from meeting set terms.

While open bridging loans are more flexible, they are also more expensive. Because of the additional uncertainty regarding repayment, lenders usually apply higher rates of interest to cover the potential risk. They are also rarer. Lenders are typically less willing to provide open bridging loans as they carry more risk. Borrowers will need to do more to prove that they will be able to repay in the near future to be granted a loan of this type.

Not sure whether an open or closed bridging loan is the right product for you? Discuss your individual circumstances in confidence, with no obligation, with our experienced team.

 

When the sale of your old property is taking a long time

Selling a house is rarely straightforward. With any number of legal loopholes to jump through and conveyancing conundrums to overcome, it can take much longer than you think to sell your old property. This can seriously put the brakes on purchasing a new home.

Many residential buyers feel trapped on the housing ladder, worrying about where they will find the funds to purchase their next property, while their finances are all tied up in their old home. Fast bridging loans offer a solution to this problem, lending borrowers the money they need to secure their next dream property before it’s snapped up by another buyer, even when their old property is yet to be sold.

When arranging a mortgage is a slow process

If you’ve arranged a mortgage over the past decade, you’ll know that providers’ willingness and ability to lend has fluctuated considerably over the past ten years. Following the credit crunch, rules and regulations have also repeatedly changed, which has meant that securing a mortgage can sometimes take longer than anticipated.

While it is not advised that you take on quick bridging loans without mortgage approval, if you are waiting for loose ends to be tied up with your mortgage, a bridging loan can ensure you have the funds to purchase your new property while you wait for your mortgage to be completed. In a housing market where competition for property is fierce, access to quick bridging loans can be the difference between losing out on your ideal property and ensuring you secure the home you want.

When bidding on auction properties

Buying property at auction requires you to think – and act – fast. That’s what makes fast bridging loans a good option for those buying in this scenario, whether you’re looking for a “fixer-upper” or you earn money as a professional property “flipper”.

With successful bidders often required to pay 10% of the property price upfront as a deposit, paying the remainder outright within 28 days, it’s crucial that property auction buyers have the finance they need close at hand. If they fail to pay, the financial penalties can be severe.

Quick bridging loans are generally much faster to access than mortgages and funds from other “for sale” properties. These loans are effective when it comes to tiding auction buyers over until they can secure the long-term finance they need from more conventional sources.

When are bridging loans not appropriate?

While there are many scenarios in which short-term bridging loans are appropriate and helpful there are others in which they may be risky. You may want to avoid bridging loans when:

  • You do not know exactly when or how you will be able to make repayments
  • Your mortgage has not been approved and you are not confident it will be
  • You have not fully understood the interest rates and fees applied to the loan

Do you think a quick bridging loan could be the right solution for your situation? Discuss your circumstances in confidence, and with no obligation, with our expert team.

Like many finance options, bad credit can often be seen as presenting an obstacle to bridging loans. Whilst this is true for many high street lenders, bad credit does not necessarily mean you have to shut the door on bridging loans as an option. Just Mortgage Brokers work with specialist lenders, not traditionally found on the high street, who can support those with bad credit, and have access to rates and deals favourable and available to those with bad credit.

Whilst these options are available, we always advocate that people, where possible, look to improve their credit rating. Some actions that people can take include:

  • Use credit cards less and more wisely when it is required to use them. Do not use them as a cash-flow “solution”.
  • ALWAYS pay debts and bills on time.
  • Avoid payday loans or taking out other forms of credit
  • Look for ways to repair your credit

Bridging lenders come in all shapes and sizes. Due to the sheer number of options out there, it is advisable to contact an FCA-regulated broker. At Just Mortgage Brokers, we know which lenders to approach to find the most competitive deal given a particular set of circumstances. We will also be able to advise you as to whether alternative finance sources might represent a more affordable option.

If you would like to discuss a bridging loan, or bridging finance with a skilled adviser from the Just Mortgage Brokers team, get in touch today.

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