Are you currently in the process of purchasing property or land but are having issues with cash-flow? A bridging loan could be a viable solution to help you get back on track.
What is a bridging loan?
A bridging loan, or bridging finance, is a type of alternative lending – a financial agreement that is specifically designed for short-term funding when cash is unavailable.
A practical option for asset-rich borrowers without readily available cash-flow, a bridging loan makes it possible to borrow capital quickly as it is not income based. It is backed by security on another property (or land) by way of a first or second charge, in the same way as a mortgage.
Often, the property used for security is the one being sold or bought. However, bridging finance solutions can sometimes be secured against a different property within a portfolio, for example a buy to let property or holiday home.
A good example of a client in need of bridging finance is a new property developer requiring financial help when they have not yet received the funds from their previous sale. Bridging finance can, quite literally, bridge the financial gap between the properties before cash-flow resumes.
What is the different between a bridging loan and a standard loan?
With a standard loan, the interest rate may be lower but they do not offer the flexibility and speed of a bridge.
Typically, bridging finance solutions are a short-term loan with a higher interest rate. This is because large funds can be made available quickly to borrowers. The loan can be repaid immediately or up to 24 months later, and often have no fees for exiting your agreed term early so long as the loan has been fully repaid.
What types of bridging loans are available?
Depending on your financial situation, there are different types of bridging solutions available. The main two being a regulated bridge and an non-regulated bridge.
What is a regulated bridging loan?
- Only suitable when the property is not intended for business purposes, for example a borrower or family who are living or will live in the property
- Typically limited by regulatory conditions
- An exit plan is required, often it’s the sale of the security (or another) asset or provable refinance
- There are a limited number of lenders in this lending space
What is a non-regulated bridging loan?
- Non-regulated bridges offer more choice than the regulated option
- There are servicing or non-servicing options available
- Typically, lenders offer loans on a gross loan basis and deduct the interest to be paid over the term of the loan
- Borrowers should look closely at the type of interest calculation, as often lenders will apply interest on to the interest borrowed
Who can get bridging finance?
At Coreco Commercial we’ve been approached by a number of clients who are looking for bridging finance solutions. They include:
- Homebuyers in a complex chain
- Residential and commercial property owners avoiding repossession
- Commercial property developers
- Auction buyers
- Property buyers with undervalued transactions
- Purchasers with unusual property types
- Clients with uninhabitable property or structural complexities
- Land buyers with or without planning
If you’re unsure of the qualifying criteria, contact our friendly team of advisers for more information.
Bridging finance: Good to know
Capital made available through bridging finance is often flexible and accessible quickly. However, there are some considerations which you should be aware of.
Bridging loans are often determined on your ‘exit strategy’, or the way in which you intend to pay back the loan. If you have secured the loan against another property, you may risk losing it if you are unable to repay the loan within the agreed contract term.
Another risk for borrowers is if they have secured a bridging loan but are unable to complete the sale because their chain breaks down. In this situation, the client may risk having their property repossessed by the lender.
However, contacting an experienced specialist broker may help you weigh up the most suitable options for your situation. While a bridging loan may have a high interest rate, our team of qualified commercial mortgage and bridging finance brokers will work hard to find the most suitable solution for your circumstance.
Keen to see bridging finance in action? Take a look at how we helped secure a bridging loan for our client with a personal need.
Our friendly team of expert advisers are on hand to answer any questions you may have about bridging finance. Call us on 020 7220 5100 or contact us online today.