Recent years have seen the UK bridging loans market grow, expand and diversify like never before. But what exactly is bridging finance? Or more importantly, what are the benefits of bridging loans, over and above more traditional financial products?
Bridging loans are short-term interest-only loans, which are typically used to cover the costs of property investments. Bridging finance amongst other varied uses, can be used by borrowers to purchase properties while awaiting the sale of their existing property – effectively ‘bridging’ this temporary financial gap. They are also often used to cover the costs of large-scale property refurbishments, upgrades and extensions, prior to the property being sold-on for profit. Investors looking to buy properties quickly at auctions also often rely on bridging finance. Bridging finance can be available for virtually any legal use.
There are two primary types of bridging loans:
In reality, funders no longer base lending criteria on whether the loan is an open or closed bridge. All exit strategies are scrutinised to prevent defaults and if the exit does not make sense, the loan will not be agreed.
Across the UK, High Street lenders no longer offer bridging finance to their clients. This withdrawal has left a gap in the market that has been filled by smaller lenders offering access to bridging loans, with successful applicants on occasions accessing the funds they require within no more than a few days.
Quality bridging loans bring a variety of unique benefits to the table, including but not limited to the following:
However, there are also some downsides to factor into the equation, such as:
The table below resembles a typical bridging loan repayment rate of 0.44%, over a 12-month term exc. broker fees
|Bridging Loan Amount||Repayment Amount (excl. broker fees etc)|
|Bridging Loan Amount||Loan Repayment Amount|
First-charge bridging loans on your own residential property are always regulated by the Financial Conduct Authority or FCA, meaning that the lender must follow several important operational rules. However, the same rules may not apply in the case of first charge loans on investment and commercial properties – consult the Financial Ombudsman Service directly if you encounter any issues.