Property bridging loans play an important role in the UK property market, providing borrowers quick, flexible access to funds. Bridging loans are a popular choice for property investors and developers as they enable them to “bridge the gap” between a funding requirement and a future income.
For a complete overview of how these funding solutions work, you can also explore our guide on bridging loans UK.
What is a Bridging Loan:
A bridging loan is a short-term loan intended to “bridge the gap” between a current expense and future cash flow. Bridging loans are a popular option for investors and real estate developers since they may be utilized for a variety of purposes, unlike traditional mortgages which are not as flexible.
If you want a step-by-step breakdown of the process, read how bridging loans work.
Traditional mortgages and bridging loans differ in a number of ways. Firstly, while some bridging loans might run for several years, they generally don’t run for longer than 24 months.
Furthermore, they often have higher interest rates than conventional mortgages due to their short-term nature and higher risk profile.
Moreover, bridging loans are a widely accepted method of property finance and are offered by a variety of lenders from specialty lenders to high street banks.
Finally, many bridging loan lenders allow interest payments to be rolled-up or serviced.
Rolled-up interest is where the interest payments are settled at the end of the loan, in one lump sum.
For cost considerations, you may also find how much does a bridging loan costs.
Common Uses of a Bridging Loan:
As previously mentioned, bridging loans are widely used in the UK property market by developers and investors alike.
One of the most common uses of a bridging loan is for the purchase of a new property, prior to the sale of a property that is currently owned.
Property owners can secure a bridging loan in order to purchase a new property on the condition that the loan is repaid with the proceeds from the sale of their current property.
If you are stuck in a chain situation, read how to use a bridging loan in a property chain.
Another common use of property bridging loans in the UK property market is by property developers.
Property developers will often use bridging loans to fund the renovation or construction of a property.
For wider funding structures, explore property development finance.
In this case, developers will apply for a bridging loan on the condition that it will be repaid once the construction is completed.
Generally the developer will repay the lender in one of two ways:
- Sale Proceeds: the developer will repay the lender once the newly constructed property is completed and sold.
- Refinance: in this case the developer will refinance the property onto a longer term facility, using the proceeds to repay the bridging loan lender.
Understanding exit strategies in bridging finance is essential when planning repayment.
Why are Bridging Loans Importance for Developers:
Flexibility:
Developers are able to use bridging loans for a number of different reasons, from purchasing the property to the construction of the property.
In addition to this, the option of rolled up interest allows developers a greater degree of flexibility with regards to their cash flow.
Given the risks involved in property development, the flexibility offered by bridging loans makes them an attractive option for developers, even if they come at a premium.
It is also important to understand the cost of bridging loans before committing to short-term finance.
Speed:
Given the complexity of the property development process, developers may encounter an urgent requirement for funds.
Bridging loans can offer developers a quick solution by providing them with fast access to capital.
Given the quick application and underwriting process, bridging loans can be completed in a matter of weeks or even days.
Cash Flow Flexibility:
As previously mentioned, bridging loans offer developers quick access to funds without cash flow constraints.
For example, bridging loans with rolled-up interest enables developers to access funds without having to make regular interest payments.
This can be crucial to the success of a development as managing cash flow is one of the most important aspects of any development project.
How can a Development Finance Broker Help You:
Development finance brokers have a wide network of bridging loan lenders, each with their own products and criteria.
By working with a broker, developers can access funding options that are best suited to the specific requirements of their development project.
For broader funding strategies, you can also explore property development finance UK.
In addition to this, given the time constraints involved in a property development project, brokers can ensure that developers are able to complete on their bridging loans as efficiently as possible, reducing any potential delays in the overall project completion.
Conclusion
With this in mind, developers should consult their development finance broker prior to embarking on their property development project.
To explore all available funding options, eligibility criteria, and tailored solutions, visit our bridging loans UK page.
