Find my Specialist Broker

Bridging Finance

Speak to a Specialist Broker Today!

Looking to get a bridging or devleopment loan to purchase land or property?

Free, Quick & Easy. No Credit Check

Your complete guide to BRIDGING FINANCE

Take a read at important topics written by Bridging finance Brokers.
Our bridging finance guide details all you need to know about taking out bridging or development finance to purchase land or property

BRIDGING FINANCE EXPLAINED: HOW BRIDGING FINANCE WORKS

Bridging finance is a short term loan you would take out for speed of purchasing land or property. It is a temporary option which is used to acquire land or property with minimum fuss while you sort out long term finance. This type of lending is often seen when people are purchasing properties in auction and need quick method to pay within the timescales. Or to refurbish a property which cannot be bought or remortgaged because mortgage lenders will not lend at the current state of the property.

Bridging loans “bridges” the space between the time and purchasing the land or property to when the loan can be transferred into long term finance like a mortgage or sell the property. Whilst this method of borrowing is quite good for customers it must be noted this can be costly option and borrowers need to be mindful that because this is short term lending they must refinance or sell within the timescale they have agreed. These timescales will be between 3 to 18 months depending on their project.

Bridging finance companies charge a percentage of the loan each month and depending on the specific bridging finance, they can roll up the interest and pay it all off at the end of the term. Or the borrower can pay the interest on monthly basis and pay the loan off at the end of the contract. Most Borrowers use the first method of rolling up the interest and paying at the end because it gives them a break with payments while they finish off work on the property or land. Once the property is finished they can then refinance or sell the asset and pay back the money.

Most bridging lenders will offer between 50% to 90% loan to value so the borrower will still need to come up with a deposit when considering this option. It must be noted, anyone looking for the higher loan to value will depend on their circumstances.


REGULATED VS. UNREGULATED BRIDGING

Regulated bridging

A regulated bridging loan is described as finance which you are taking out on a property you have lived in or going to live in.
A traditional mortgage method are usually too long to suit the particular need of refinancing for their property or land purchase. This is typically the case in some conditions such as:

  • Where a buyer backs out of the property, you desire to sell to reserve your move.
  • Where you would like to get a property at auction at short notice and want a flexible budget.
  • Where you wish to purchase a property at low cost market value so that you can refurbish and before moving into.

In all of these situations a regulated bridging loan is a beneficial way of helping through the procedure with the least difficulty, whilst allowing you to attain the property and completing the refurbishment. Hence increasing the value so your new mortgage can pay your Bridging finance back.

Unregulated bridging

When the land or property is going to be used for investment or business intentions then a bridging loan is ‘unregulated’. Any representative of the borrower or their immediate family will never be allowed to occupy that asset. Loans taken under a business or company name would also fall under this category of ‘unregulated’ bridging finance.

There are many bridging loan lenders, offering both regulated and unregulated loans.

Some examples of properties being purchased by bridging finance

  • Semi-Commercial -
for instance, a store with a flat on top.

  • Commercial land.

  • Residential Houses or Flats –
Properties bought in auction so they can quickly refurbish and sell or rent out.

  • Land -
development land, farmland (with or without planning), etc.


OPEN VS. CLOSED BRIDGE

There is one central component to a bridging loan which will decide whether it is open or closed bridge and that is where you know that the borrower has planned exit to pay back the loan or not. In case there is no exit strategy, then it is an open bridging loan, if yes then it will be closed. These exit plans are everday things such as the acquisition of a mortgage, the sale of another land, or a planned amount date for another transaction. The lender will give you the rates of a closed bridging loan if you know that you will have the cash to pay off the loan and can prove this to the lender. Bridging Lenders will ask for a complete exit plan, including a complete-by date, before they will be ready to provide the loan – the same is not applicable to an open bridging loan.

  • Open Bridge -
Best describing this sort out bridge is when you are purchasing your new home and haven’t sold your old home and are uncertain when it will be sold to pay back the loan.

  • Closed Bridge -
You have an exit strategy for the bridging loan, either in the form of decision in principle from a mortgage lender, inheritance or investment maturity. Bridging lenders expects you to know your exit and this can go in your favor of getting better rates.


HOW MUCH CAN I BORROW FROM A BRIDGING LOAN?

Depending on the bridging company most lenders will pay up to 75% of the property or land. So the amount borrowed is based on financial worth of the asset. Whilst you’re earning will not be the bridging company’s main priority they do like to see how you are going to pay off the bridge.

Bridging companies will calculate the risk factors involved of purchasing the particular asset and will consider more sensible approach when lending as opposed to a mortgage lender. Bridging companies will increase the Loan to value if you have more properties to offer as security. They can then look at higher percentage by using the second property as collateral and allow you to borrow more. But again please be aware it all depends on your circumstances for the bridging ender to consider these options.


WHAT DEPOSIT WOULD I NEED FOR A BRIDGING LOAN?

Bridging loan companies can be flexible in this and depending on your circumstances would normally ask for 20% deposit however if you have property which you own with equity, then they can use that as security to help with deposit. The risk of the investment will be key here and if the risk is greater then so will the deposit.


HOW DO THEY CALCULATE THE INTEREST OF A BRIDGING LOAN?

The bridging companies set the interest rates based on the profile of the cases. So they will assess your circumstances and the risk to then offer you a particular monthly rate.

There are two methods to calculate the bridging loan:

  • Rolled up interest

It means the interest is directly estimated beforehand and added to the balance of the final loan

It is a well-known practice in bridging finance since borrowers don’t want an uneasy figure to deal without having to aspects in monthly charges.

  • Monthly Interest

The Borrower will pay the interest on monthly basis so when the deal ends they will only pay back the amount borrowed.

  • Retained interest

Most bridging loans are applying the retained interest method.

Fundamentally, when the lender offers the money to the borrower they will roll up the interest and retain that amount from the loan which is being borrowed. Therefore the lender will be taking the monthly payments from the retained amount each month.


HOW LONG CAN BE A BRIDGING LOANS BE TAKEN OUT?

Bridging loans generally take less than a few weeks although some bridging finances have been done within days depending on the client getting there documents quickly. Whilst Bridging companies work faster in placing finance that your traditional mortgage they still implement sensible and reasonably stable lending criteria. These lenders are usually smaller operations to mortgage companies and experts in doing all of the routine checks a lot quicker than the banks.

The period of the loan can be short as one day, but usually up to a maximum of 12 to 18 months.


BENEFITS OF BRIDGING FINANCE

Bridging loan is uniquely convenient option, so if you are ready to begin an application or still examining the options accessible to you, here is a brief guideline of the substantial benefits of bridging loan.

  • The process is quick

From the very beginning, attaining access to the cash you needed by way of a bridging loan can be uniquely quick and beneficial. It is feasible for the loan to be paid in a couple of days. Equate this with the few weeks required to secure a conventional loan or mortgage and it’s not difficult to see why those in a rush are going for a bridging loan.

  • Limitless potential applications

Traditional banks and lenders are very particular as to the intended purpose of the loan so will ask more questions and need more information to permit loan applications. By contrast, a bridging loan can be based on simple risk factor and plans submitted with explanation of what the borrower is intending to do with the property or land. Limited paperwork and speed of application is the key when using bridging finance.

  • Flexible repayment

When getting a bank loan they will have the final say on how and when you return your loan; bridging lenders are appreciably more adaptable. In terms of the full time scale of the investment, interest amount, etc., those who go for bridging loans enjoy a high degree of versatility.

  • Relaxed lending criteria

Bridging companies will not look into your income but the risk of the project being taken on. Your properties can be used as security, minimal paperwork with relaxed lending options. Transparency of lending policy and procedures and in some instances no credit checks

If all of the mentioned benefits sound good to you, Bad credit mortgage brokers will introduce you to knowledgeable advisors who are self-sufficient in providing you with the guidance and help you need.


CAN I BUY LAND WITH BRIDGING LOAN?

Simple answer is Yes.

You can buy land with a bridging loan but most bridging companies would prefer planning permission being granted before considering purchasing the land. Having planning allows the lender to offer you better interest rates but also favorable terms.

Property developers generally use self-build mortgage but this method can be so time consuming and paper driven process which sometimes the borrower does not have the time. They want something quick and easy which is why Bad credit mortgage brokers can match the industry expert to help you get the right bridging deal.

CAN I BUY A HOUSE WITH BRIDGING LOAN?

Depending on what you are buying the house for there are flexible options for you to consider with bridging finance.

    • Moving Home or Downsizing - If you are looking to move but have not found a buyer for your current property but desperate to buy your new home than as long as there is enough equity in your current property then a bridge loan can be the answer.
    • Auction - When buying a property at auction you have to put 10% deposit down on the day and have 30 days to complete the transaction otherwise you lose you 10% deposit. Bridging finance allows to pay for the rest within the timescales of the auction due to the speed and flexibility of the application.

DEVELOPMENT FINANCE WITH BRIDGING

Bridging for development is also something bad credit mortgage brokers can arrange through the introduction from brokers who have in-depth knowledge of the bridging market. Developers are finding it increasingly difficult to get finance through the normal channels and getting a foothold into purchasing the land is one of the hardest jobs contemporary developers face.

Through the ease and simplicity of a bridging finance the developers can push forward acquiring the land and cementing the project before they refinance later with long term options. We at Bad credit mortgage brokers have seen a huge demand in developers taking this finance option to purchase land and lend staged payments so they can increase the value of their project and borrow as they build. So get in touch and we will introduce you to brokers who can get the best deals on the market for you.


SPEAK TO A SPECILAIST BROKER

Are you looking for quick finance, struggling with time but have project that needs cash injection to help move the refurbishment forward. Or going to auction soon and need to purchase a property quickly then send us an enquiry and see how Bad credit Mortgage brokers can help you find the right broker to ease your worries. Bad Credit Brokers will put you in touch with bridging experts to find the right product for you.

Free, Quick & Easy, No credit check


FCA disclaimer

The information written is a relevant and comprehensive guide for visitors to read about the mortgage industry. The information collated is based on current mortgage lending criteria and polices. We endeavour to keep the website up to date but the information may vary from time to time as lenders change their criteria based on evolving financial climate. Please be aware the information and guidance written is not specific to an individual and does not constitute advice or guarantee a mortgage. The industry experts we introduce are qualifiedto give mortgage advice and are regulated by Financial Conduct Authority. All advice given by the advisors will be based on your specific requirements and circumstances.Your Home may be repossessed if you do not keep up repayments on your mortgage. Thinkcarefully before you secure any debts against your property. The Financial Conduct Authority does not regulate some forms of buy to let mortgages.