MORTGAGE BROKER IN KENT, LONDON & SOUTH EAST
BRIDGING LOANS
A Bridging Loan is short-term finance, secured on a single property, multiple properties or even land, allowing faster access to finance or where a conventional mortgage isn’t viable initially.
What Is A Bridging Loan?
A Bridging Loan, as the name suggests, is a short-term solution to 'bridge' the gap between two transactions or financial obligations. It is a type of loan that allows borrowers to access funds quickly to meet immediate financial needs while awaiting a longer-term financing solution or the completion of a specific transaction. Learn more with our Bridging Loan FAQs >
Who Is A Bridging Loan For?
Traditionally, bridging loans have been utilised for individuals needing to buy a new property before completing the sale of their current residence, a 'chain-break' scenario, or by investors looking to purchase a property quickly at auction. However, bridging loans are now used by partnerships, limited companies, property developers, and trusts for a multitude of purposes.
What Are The Advantages Of A Bridging Loan?
The speed in which the finance can be arranged, often completing within 1-2 weeks compared to 6 weeks to 6 months for a standard mortgage.
Flexibility in the types of properties considered, including assets that standard mortgage lenders may not lend on like land, part-built properties or a building in disrepair.
Ability for the borrower to 'Roll' the interest and deduct it from the initial loan, to help avoid high monthly interest payments which can improve cash flow.
What Are The Disadvantages Of A Bridging Loan?
Considerably higher interest rates and arrangement fees.
Associated costs like specialist valuation fees.
Increased legal costs.
Additional lender requirements, like proof of ‘exit strategy’.
Examples Of Where A Bridging Loan Can be Used
The scenarios where a bridging loan can be used are varied but include:
Purchasing a new property or land while waiting for another asset to sell.
Acquiring land without planning permission.
Properties that are not mortgageable.
A property that requires a change of use certificate.
A working example:
A client used a bridging loan to purchase a business centre
The client planned to apply for planning permission to convert the existing building (which was an old school) into luxury flats
Once the purchase was completed, the client received planning permission sometime later.
The client was then able to exit the bridging loan with development finance, which also accounted for the planning gain that the property had achieved.
Process And Documentation Required For A Bridging Loan
The process includes:
Initial enquiry
Agreement in principle/offer subject to survey
Full application
Heads of terms or mortgage offer
Documents required:
Proof of ID
Proof of address
Bank statements
Proof of income
Proof of deposit
Exit strategy
