Bridging
What is bridging finance?
Bridging finance is a type of short-term property finance designed for when traditional mortgage finance is not suitable due to the property state or when a property transaction needs to complete in a short timescale.
How quickly can bridging finance be arranged?
Bridging finance can be arranged in a matter of weeks or even days sometimes. 1 The exact timescale will depend on the lender, the property, valuation requirements, legal work and how quickly the necessary information is provided.
How much can I borrow with bridging finance?
This tends to be around 70% of the property value. This is due to the fact that bridging is only meant to be a short term funding solution and you will need to remortgage at the end of the term. In some circumstances, lenders may consider additional security, allowing a borrower to raise the whole purchase value.
Can I get bridging finance on an unmortgageable property?
Yes. Bridging finance can potentially be used to purchase properties that would not qualify for a conventional mortgage.. The important consideration is usually whether the lender is comfortable with the property and whether there is a clear and credible strategy for repaying the bridging loan (the exit strategy)
Can I use bridging finance for property refurbishment?
Yes. Bridging finance can be used to purchase a property that needs refurbishment works. This can be particularly useful where the property is currently unsuitable for a standard mortgage For example, an investor could purchase a property using bridging finance, carry out the required refurbishment and then refinance onto a standard buy-to-let mortgage once the property has been improved.
What can bridging finance be used for?
Bridging finance can be used for a variety of property-related purposes, including: Auction purchases, Residential property purchases, Refurbishment projects, Property conversions, Commercial-to-residential conversions. Chain-break purchases, below market value, Development site acquisitions, Repossessed or distressed property purchases
What is an exit strategy for bridging finance?
An exit strategy is the plan for repaying the bridging loan. This is one of the most important parts of a bridging finance application. The lender needs to be satisfied that there is a realistic way for the loan to be repaid when the term ends. Common exit strategies include: Selling the property, refinancing onto a residential mortgage, refinancing onto a buy-to-let mortgage or selling the property.
How long can I have a bridging loan for?
Bridging finance is designed to be short term. They tend to last between 3 months and a maximum of 18 months although some lenders go up to 24months.
How much does bridging finance cost?
Bridging finance is more expensive than traditional mortgages. This is due to the higher risk associated with it. Costs can include a lender arrangement fee , Valuation fees – although we have many using free of charge desktop valuation for residential properties, Legal fees and broker fees.
Do I have to make monthly payments on a bridging loan?
Not necessarily. Bridging loans allow the interest to be rolled up or retained rather than paid monthly. This can help with monthly cash flow, although the total amount owed will increase as interest accumulates.
Can I get bridging finance with bad credit?
Potentially. Bridging lenders can sometimes consider applications where a borrower has an adverse credit history. The lender will consider the nature and severity of the credit issues, the property being offered as security, the amount being borrowed and the proposed exit strategy. The strength of the overall transaction and exit can be particularly important where a borrower has a less straightforward credit history.
Can I get bridging finance without planning permission?
Potentially, depending on the purpose of the loan and the property. Bridging finance can sometimes be used to acquire land or property before planning permission has been obtained, although the amount available and lender appetite will depend on the circumstances. Where the intention is to obtain planning permission and then develop or sell the site, the lender will want to understand the planning strategy, proposed use and exit route.
Can I use bridging finance to buy land?
Yes, although the availability of finance will depend on the type of land, its value, planning position and proposed use. Bridging finance can potentially be used to acquire land with or without planning permission. However, land without planning generally presents a higher level of risk to the lender and may therefore attract lower maximum LTVs or more specific lending criteria. If you are buying land with the intention of securing planning permission, it is important to discuss the proposed strategy with a specialist before proceeding.
Can I use bridging finance to buy before selling my current property?
Yes. Bridging finance can potentially be used to purchase a new property before the sale of an existing property has completed. This can be useful when you need to move quickly to secure a property but are still waiting for your existing property to sell.
Can I use bridging finance for a property below market value?
Potentially, yes. If you are purchasing a property below its open market value, a lender may consider the purchase price alongside the property’s valuation when assessing the loan. However, lenders will have their own policies regarding how much of the property’s value they are prepared to lend against.
Can I use bridging finance to buy a property that needs work before I can get a mortgage?
Yes. This is a common reason for using bridging finance.
Do I need a valuation for bridging finance?
Usually, yes but we are relying more and more on desk top valuations that cut down on cost and timescales for quick turnarounds on bridging finance. If a valuation is deemed necessary it is usually paid by the borrower and cost vary depending on the property, its location, value and complexity. A physical valuation is always needed on a commercial property.
Do I need a solicitor for bridging finance?
Yes, and the solicitors must be versed with auction finance. A lot of lenders will offer dual-representation (dual-rep for short) . This is when one company is used for both yhe borrower and the lender, this helps cut down on cost and time but the borrower is still responsible for the cost.
Can I repay a bridging loan early?
In many cases, yes, although the terms of the individual facility will determine whether there are any early repayment charges or minimum interest periods. Most have a minimum term of 3 months.
What happens if I cannot repay the bridging loan on time?
Some lenders may be able to consider an extension, but this is not guaranteed and additional costs may apply. A suitable work and time schedule for works is needed at the start of the bridging facility.
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