Bridging Finance v Mortgages
Bridging Loans, in many ways, follow exactly the same processing route as a mortgage and are often referred to in the loan paperwork as a “mortgage”. Bridging Loans however have a number of distinct and subtle differences:
- Bridging Loans are usually arranged for short term requirements, starting at 1 day and up to a maximum length of 18 months (average 6/7 months). A mortgage is usually arranged for a much longer period as most mortgage lenders have a minimum term of 5 years.
- Bridging Loans can be arranged on all types of buildings and land, whatever the condition. Mortgages are generally arranged on habitable property and cannot be used for land purchases.
- These loans can be secured on a property as an additional charge such as a 2nd or 3rd charge behind another charge already in situ, such as a mortgage. Mortgages will only be arranged on a 1st charge basis.
- Bridging Loans, unlike mortgages, do not usually require monthly payments. In this way, proof of affordability requirements that are needed to achieve mortgage finance are not so relative. As such, people on low or even without income can obtain a bridging loan.
- Bridging Loan companies tend to be smaller organisations offering a flexible and personal solution whereas mortgage companies are often much larger organisations and use a “computer says yes/no” mentality
- Bridging Loans are often repaid via the sale of the security or other property. Due to this, as refinance is not the exit route, Bridging Loan lenders will often take a view on credit issues that mortgage lenders would never accept.
- Bridging Loans can be arranged & completed extremely quickly whereas it can often take weeks just to get a lengthy mortgage appointment arranged with a bank or building society.
- Bridging Loans are usually arranged without exit fees so even if the term of the loan is arranged for 12 months, it can be repaid without penalties at any time during the term. Most mortgage finance has penalties if repaid within the initial agreed period.
- Bridging Loans can be arranged for 100% of a properties purchase price provided other security can be used. Mortgages of 100% LTV are NO LONGER available.
- Bridging Loans can be arranged for basically any legal use, especially business purposes. Mortgage funds can only be raised for limited reasons of which business purposes are often not one.
- Bridging Loans can be initiated in either a Ltd company or personal name. Mortgages especially residential mortgages are always arranged in personal names only.
- Bridging Loans cater for extreme maximum and minimum loan sizes. Mortgage companies tend to deal more in the middle ground and have a much lower maximum loan size and a much higher minim loan size.
- Bridging Loans can be used if the security property has Land Registry title problems such as a property converted into 2 flats but as yet the separate leases have not yet been created. Mortgage finance would only consider properties with a clear and perfect title.
- Typically, Bridging Loans can have no age restriction. Mortgage companies have substantially lowered the age allowable to obtain mortgage finance and as such due to other factors such as affordability, it is rarely possible for average income employed people in many areas of the country to obtain the required amount of mortgage finance much beyond their 50’s.