What is a Property Bridging Loan?
A property bridging loan is a well-established form of property finance in the UK, used by both first-time buyers and experienced investors. Property bridging loans enable investors quick and flexible access to capital in order to take advantage of a time sensitive opportunity. When underwriting a property bridging loan, lenders have a greater deal of flexibility than with traditional mortgages, leading to a quicker application process that generally only lasts a few weeks. Moreover, given their higher risk profile, property bridging loans have higher interest rates than traditional mortgages, making them less suitable for long term horizons. Another important aspect to understand when it comes to property bridging loans is how they are repaid. Lenders will want to see a certain, well-researched repayment strategy as part of their underwriting process. While there are a number of ways to repay a property bridging loan, the most widely accepted is through the sale of a property (either the security property or another property).
Property Bridging Loans in the UK
There are hundreds, if not thousands of property bridging loan lenders in the UK, from specialist bridging finance lenders to UHNWI lending their own funds. While the competition between lenders has contributed to cheaper finance for borrowers, it has also made the lender market difficult to navigate. With each lender offering their own bridging products, there are thousands of different product on the market, each suited to different situations. With this in mind, a skilled bridging finance broker can offer an invaluable service. Property finance brokers spend a great deal of their time researching the market to ensure that they are up to date with new lenders, their products and their criteria, giving them an in-depth knowledge of the market. By enlisting the services of a skilled bridging finance broker, you are gaining access to their extensive network of lenders. While property bridging loans can be used for a variety of different reasons, there are a handful of common uses in the UK:
Common Uses of Bridging Loans:
Bridge to Purchase:
Bridging loans are commonly used to purchase a property, due to their fast and flexible nature. The nature of the real estate market is that opportunities can come and go quickly, presenting a challenge for investors. Before bridging loans, borrowers would have to wait for a traditional mortgage application to be approved, which can take months. Bridging loans, on the other hand, can be arranged in a matter of days or weeks, allowing borrowers to take advantage of limited time opportunities with certainty.
Bridge to Sale:
Properties can often spend months (or even years) on the market, especially in a slow market. This means that the sellers funds are tied up in a valuable asset for extended periods of time, often leading to them missing out on other opportunities. This is where a bridge to sale becomes useful. A property bridging loan (secured against the property on sale) can enable the borrower to access funds quickly, without having to wait for the sale of the property. Once the property eventually sells, the borrower can use the proceeds of sale to repay the bridging loan.
Refurbishment Bridge:
When purchasing a property, investors often carry our refurbishments on the property to uplift its value and refresh the space. In this case, borrowers can make use of a refurbishment bridging loan, which provides them with access to funds to purchase the property and refurbish it. These loans can be repaid from sale of the property or upon refinance onto a longer-term mortgage, making them popular choices for house flippers.
Development Exit Bridge:
When a development has been completed and the developer needs to repay the development finance, there are a few ways in which they can do this. Firstly, they can sell the units on the open market and repay the finance with the proceeds from sale. Secondly, they can rent out the units and refinance the property development finance onto a longer-term mortgage. Finally, they can repay the finance through cash flow from other developments. If none of these options are viable in the short term, or they are taking too long to complete, the developer can refinance the development loan onto a development exit bridging loan. A development exit bridging loan can be used to repay the development finance and provide the developer with an additional 12-24 months to sell or refinance the property and repay the loan.
As you can see, there are a number of different uses of bridging loans, from property purchases to development exits, each with their own nuances. In order to ensure that you fully understand the different types of property bridging loans, it is vital that you discuss your situation with a skilled bridging finance broker.
