Bridging loans for short-term property finance

If you’re a landlord, property developer or are buying at auction, we can help arrange your bridging finance.

What is a bridging loan?

Bridging loans offer property owners flexibility and quick access to short-term funds. The funds ‘bridge’ the gap between buying a property and waiting for an existing property to sell.

People also use bridging loans to fund large-scale home improvements and renovation projects.

How do bridging loans work?

There are two types of bridging loans: closed and open. With a closed bridging loan, your lender requires you to pay off the loan on a set date.

In contrast, an open bridging loan has no fixed repayment date. Rather, most bridging providers expect you to pay the loan back in its entirety within 12 months.

Most bridging loan lenders allow borrowers to ‘roll up’ the monthly interest into the loan. As such, borrowers avoid having to make repayments during the term of the loan.

The whole application process is usually straightforward. This makes bridging loans simpler to arrange than standard residential mortgages.

Underwriting and affordability assessments are less stringent, too. This flexibility allows loan completion—from start to finish—in under one week.

Bridging loan uses, security and value

Most bridging clients are professional landlords, property developers or high-net-worth individuals. In most instances, they want funds, but without the timeline of a traditional mortgage.

The amount someone can borrow depends on the security offered against the loan. Borrowers can pool together several owned properties to secure a larger size loan. Property or land can provide the security for bridging finance.

Given borrowers’ use of bridging, the property the funds buy isn’t always the security. The main uses are:

• Purchasing land for development purposes;
• Buying a property on short notice, such as at an auction;
• Purchasing run-down or dilapidated property;
• Financing property restoration or conversion work;
• Preventing the repossession of a property;
• Buying a property that’s below market value.

Using a bridging loan to buy property at auction

Buyers often use bridging loans to buy properties at auction. In fact, auction houses will often have a partner to provide bridging finance to clients. But it’s never a bad idea to seek advice before committing to buying at auction.

An independent whole of market broker can research the market for you. They can even get your bridging loan pre-approved. You can then be sure that, when you raise your paddle, you know what you’re committing to.

It’s important you do, too. Auction houses use a 28-day deadline to exchange contracts. This short timeframe negates the traditional mortgage as a payment vehicle.

Failure to complete within the given 28-day timeframe can have severe repercussions. Bidders may lose all or part of the 10% deposit they placed on the property when the house accepted the bid.

Having independent preapproval reduces the risk of losing that deposit.

Are interest rates higher for bridging loans?

Yes, as the loans are short-term, bridging can be far more expensive than a standard mortgage loan. Interest rates are often quoted as the rate per month, e.g. 0.8% per month.

Where can I get a bridging loan?

Bridging loan providers are abundant in the UK finance and property market. There are many options and a myriad of rates on offer.

We’d always recommend you approach a “whole of market” independent broker for advice. That way, you get the full spectrum of what’s on offer. You are not then tied to one lender or auction house provider.

At Mortgage Quest, we get to know you, what you need and why you need it. Only then will we be confident which lenders meet your specific requirements. This way, you get the most competitive deal for the most relevant bridging loan for you.

Bridging loan brokers

Mortgage Quest is a highly-experienced team of bridging loan brokers. Our advisors will work with you to provide simple, fast short-term bridging finance.

If you have questions and want to speak to an advisor, call us today on 020 421 7998 or enquire here.