Bridging Finance Explained
Welcome to our guide to bridging finance where we will provide an overview of what a bridging loan is, the different Bridging Finance options available, an overview of the process, the types of lenders involved and things to consider.
What is a Bridging Loan?
A bridging loan is a short term loan facility, which can be used for a number of different property purchases including the following:
Bridging Finance Uses
- Bridging Finance for Auction Properties. Auction purchases normally require payment within 28 days of the auction completing, therefore a bridging loan can provide a prompt and efficient means of completing quickly, which a term mortgage will not normally be able to do.
- Bridging Finance for properties which have development potential, a bridging loan can be used to secure the property whilst the planning consent is secured. Once the planning consent has been secured then the property can then be transferred onto a development finance facility.
- Bridging Finance for properties which may be unsuitable for mortgages. Properties which are not completed, or have fallen into disrepair and may not have bathrooms or kitchens installed cannot be funded by a mortgage provider. A bridging loan can provide a facility enabling the buyer of the property to carry out remedial works and then refinancing on to a standard buy-to-let mortgage once the works have been completed.
- Property refurbishments – buying a property which requires refurbishment can be complicated, and a bridging loan can provide a facility to enable the purchase of the property, then works can be carried out and then the property can be refinanced onto a term facility.
- Property conversions – converting a property either from an office, or industrial unit to a residential property can be a highly lucrative strategy. A bridging loan can be used to acquire a property whilst change of use is secured, or to commence works on the property.
- Cash flow – bridging loans can be used to generate cash flow from other assets, enabling acquisitions or to cover other expenses.
- Meeting tight transaction deadlines – a bridging loan can be used to meet tight transaction deadlines, as bridging loans provide a fast and efficient means of transacting.
- Land – bridging loans can be used to acquire land with or without planning permission, which then development can be built out, or planning permission can be secured.
Bridge To Let Finance
Bridge to let finance is a relatively new addition to the bridging finance marketplace. A bridge to let facility is where a lender will stitch together a bridging loan, then at the same time pre-underwriting a term mortgage facility, which can be implemented once the proposed works have been carried out.
These types of facilities are commonly used where properties are being converted from office to residential, or where an HMO licence is being secured, and then the borrower will move onto a HMO mortgage.
Why use a Bridging Loan?
A bridging loan can provide a prompt and efficient means of acquiring property. Normally, bridging loans tend to be used when speed for a transaction is required.
How long do bridging loans take to draw down?
A bridging loan can draw down in as little as 48 hours, with most lenders expecting transactions to close within 28 days. However, this can be longer if the property is complicated and the legal teams involved are not proactive. The fastest bridging lenders tend to use “dual-rep” solicitors, meaning that the same solicitors firm represents both the borrower and the lender. In some circumstances this can speed the transaction up.
Costs of Bridging Loans
Bridging loan facilities are typically more expensive than standard Buy-To-Let finance, rates start from around 0.45% per month.
What’s the Maximum Loan To Value “LTV” for Bridging Finance
Bridging Finance is available from a variety of different lenders, terms do tend to vary, with a maximum of 75% in the general market. There are specialist lenders who will lend up to 85% in certain circumstances. In addition, if a property is being purchased below market value it is possible to secure bridging finance for up to 100% of the purchase price, subject to underwriting.
Commercial Mortgages Broker specialise in Bridging Finance, offering a wide variety of bridging loans including HMO Bridging Finance, bridging finance for development finance, bridging finance for land, bridging auction finance and much more.