A bridging loan is a shorter-term loan than your usual loan and can provide immediate cash flow. The most popular use is to bridge the gap between purchasing a property and waiting to sell an existing one. Bridging loans are commonly used in the following scenarios:
Bridging loan mortgages differ from your standard mortgage offered on the high street in terms of their shorter duration and higher interest rates. Bridging loans are usually repaid within 6 to 12 months. Borrowers are given the flexibility to either make monthly interest payments or settle the full interest amount at the end of the agreed-upon loan term.
Bridging finance is a flexible and highly versatile financial product that can be tailored to meet an extensive range of business and individual requirements. However, it is important to ensure you apply for the most appropriate type of bridging finance, as there are several options available with different features and functions.
Closed bridging loan:
Open bridging loan:
First-charge bridging loan:
Second charge bridging loan:
Regulated bridging loans:
Unregulated bridging loans:
Commercial bridging loans:
Downsizing to a smaller home
One increasingly common use of bridging loans is when a homeowner decides to downsize to a smaller property after having fully or partially repaid their primary mortgage. For example, the owner of a £400,000 home is considering scaling down to a more manageable £250,000 property. The challenge here is timing: they want to sell their current home to fund the purchase of their new one, but traditional mortgage lenders may not align with their schedule. This is where bridging finance comes in.
They can secure their new property quickly, often within a matter of days, using a bridging loan. Allowing for a seamless transition and avoiding the risk of being beaten to the punch by a competing bidder.
Once their old property is sold, the proceeds can be used to repay the bridging loan. This approach streamlines both the moving process and the financial transaction at a cost much lower than that of a conventional mortgage.
Buying an unmortgageable property
Investors, landlords, and individuals looking to purchase unmortgageable properties routinely turn to bridging loans. Unmortgageable properties typically require significant renovation work to be considered habitable or have unconventional features that deter traditional lenders. But they can also be highly attractive investment opportunities due to their potential for value appreciation.
High-street banks and mainstream mortgage lenders will rarely (if ever) finance properties not considered habitable at the time. Bridging loans cover this financing gap, providing flexible funding for non-standard property acquisition and renovation.
This enables buyers to seize the opportunity to purchase affordable homes and commercial lots, renovate them, and sell them on at a profit.
Purchasing properties at auction
Auction property purchases appeal to a broad range of buyers due to their potential for quick equity gains. Bridging loans are ideal in such scenarios, where prompt payment is essential. Auctions provide businesses and private buyers with the unique chance to secure properties at rock-bottom prices, but successful bidders typically need to pay the full balance within 28 days.
This timeframe can be challenging (if not impossible) to meet with conventional mortgages. Bridging loans, which can be underwritten and authorised within a few days, enable buyers to complete their purchases well before this four-week deadline.
Buyers can then explore more traditional options to refinance their property or make the necessary improvements to enhance its market value.
Covering private care costs
Selling the home you live in is the most common solution for raising the funds needed to pay for permanent care. However, this is not always straightforward in time-critical scenarios, as preparing a home to be listed on the market and securing a subsequent sale can take several months.
In urgent situations, bridging loans can "bridge" the problematic gap between covering care costs and selling a property for the best possible price.
Bridging finance, secured against residential property, provides near-immediate access to the high-value funding needed to cover care expenses. It is a fast and effective solution that ensures that your care or that of your loved one is not compromised.
Commercial development and construction projects
Development bridging loans and construction loans are tailored to the specific needs of commercial developments and construction projects. They can be used for the ground-up construction of new properties, renovations of existing properties, repurposing structures, land development, and more.
High-value bridging loans of up to £25 million or more can be ideal for covering the total costs of many types of development projects, where short-term completion or refinancing is the developer’s aim.
The table below shows examples of a 12-month bridging loan taken out at a rate of 0.55% and the repayment to be expected, excluding any broker or other associated fees.
Clients approach UK Bridging Loans either directly or via introducers. Basic questions by way of a “fact-finding” process are used by UK Bridging Loans to determine if the lending requirements are a possibility.
An immediate yes or no answer is given, and if suitable, a quotation is formulated and forwarded to the client, usually by email.
A formal offer is produced for any client wishing to proceed and forwarded for signature, again, usually by email.
Each client is visited at the security address for the signature of the remaining loan paperwork, including a CH1 land registry charging order. We will also collect any additional pre-requested documentation.
The signed documentation was immediately sent to our underwriters. Our model is based on very quick completions, as each deal is funded using all of our own money. On rare occasions, we may request additional information.
Average completion from initial acceptance to pay-out is usually just a few days. We rarely require valuations or additional legal representation. The land registry charge will be removed once the bridging loan is repaid.
The applicant could be too old to obtain a standard high-street mortgage, as most mortgage lenders now prevent borrowing beyond what is deemed “normal retirement age”.
The property may be in a condition where it is not suitable for mortgage financing, and as such, a bridging loan could be used to complete the purchase and any required work prior to refinancing.
The applicant may have had some adverse credit, however minor, which was previously acceptable to lenders but now no longer fits the high street lending criteria.
The applicant may have difficulty proving the income requirements needed for more regular financing. This may be due to poor self-employment records, a break from work, a reduction in self-employed workloads, or overtime.
What is a bridge loan? A bridging loan is a short-term financial product that enables borrowers to 'bridge' temporary gaps in their finances. They are typically used to cover time-critical needs such as property purchases or business investments while awaiting long-term financing or the sale of assets.
What can a bridging loan be used for? Bridging loans serve diverse purposes for individuals and businesses. Common uses include property acquisitions, home renovations, buying at auctions, settling tax bills, and addressing cash flow issues in businesses.
They offer flexibility and speed, making them a preferred choice for various short-term financial requirements.
What are 'open' and 'closed' bridging loans? Bridging loans come in two main types: 'open' and 'closed'.
In both cases, demonstrating a solid exit strategy is crucial for loan approval.
What are first and "second charge" bridging loans? Bridging loans can be categorised into 'first charge' and second-charge loans.
The key difference is the priority of repayment in cases of default. First-charge loans are paid off before second-charge loans.
How much can I borrow with a bridging loan? The exact amount you are considered eligible for will be calculated on the basis of multiple factors, such as the value of the assets you provide as security for the loan, the lender’s maximum LTV (which is usually 75%), the strength of your exit strategy, and so on.
A minimum loan amount of £10,000 and a maximum in the region of £25 million or more are usually the norm.
How much does a bridging loan cost? While bridging loans may have seemingly high APRs, they are short-term solutions, making them cost-effective when repaid promptly. Monthly interest can be as low as 0.4% on some bridging loans, which are usually 'rolled' into the final payment, so no monthly instalments are needed in the interim.
Interest rates vary significantly from one lender to the next, based on their own unique lending policies, the creditworthiness of the applicant, their planned repayment date and method, and more.
Bridging loans may involve additional fees:
A broker can help minimise or avoid certain fees, as they have industry insights and can identify lenders with favourable terms. Working with a broker may lead to cost savings during the loan process.
How much do you need to put down for a bridging loan? A 20–40% deposit is usually required for a bridging loan. A 100% bridging loan may be obtained without the need for a deposit, but this may require additional collateral to secure the loan, and there may be stricter requirements and increased expenses.
Can I get a bridging loan with bad credit? Yes, you can secure a bridging loan with bad credit. However, not all lenders are willing to consider applications from individuals or businesses with poor credit, and you may face higher overall borrowing costs if your application is successful.
Brokers can assist in finding suitable 'subprime' lenders. Importantly, applying for a bridging loan won't impact your credit score, making it a low-risk option to explore.
What are the alternatives to a bridging loan? If bridging loans aren't the best fit, consider alternatives:
How do I find the right bridging loan for me? To secure the right bridging loan and the best possible deal:
What property can be used as collateral for a bridging loan? The great thing about bridging loans is that you can use multiple types of property for your security. While it’s very common to use your primary residence, you can also use undeveloped land or commercial property. Since the property doesn’t have to be finished to act as security for a bridging loan, it makes it really easy to finance using the property that you have.
The types of property that you can use as security when obtaining a bridging loan include:
We offer a quick turnaround with fast bridging loans, and in some cases, we will approve and get you the finances you need in 24 hours.
Funding is provided for all manner of development needs, from light to heavy refurbishment or a complete development build.
A bridging loan can be a good way to stop yourself from falling into bankruptcy, giving you an urgent cash injection when needed.
Business finance can be obtained through bridging finance and can be used for a variety of purposes for your business.
Consolidate your debts into one monthly payment by using a bridging loan to bring your finances back into shape.
An unexpected tax bill could create a real strain on finances. Use bridging loans to pay your taxes.
A bridging loan can be used to take your mortgage out of arrears and stop the home from being repossessed in the process.
Our quick and easy bridging loan calculator can be used to easily identify repayments on a bridging loan with just a few clicks.