What is a Bridging Loan?
Bridging loans are short-term secured loans, issued against qualifying assets (homes or business properties or land) and typically available in sums of £25,000 or more.
One of the defining characteristics of a bridging loan is the requirement for prompt repayment. The full balance plus applicable fees are repaid in a single lump sum after 6-24 months.
How Quickly Can a Bridging Loan Be Arranged?
This is one of the primary points of appeal with bridging finance, which in some instances can be arranged, authorised and accessed within three working days. Even where applications take a little longer to process, the funds are usually made available within no more than two weeks.
This makes bridging finance ideal for time-critical purchases and urgent expenses, where applying for a traditional loan or mortgage would be out of the question.
Who Are Bridging Loans Designed For?
Anyone with property deemed viable to cover the costs of the loan is an eligible candidate for bridging finance. Homeowners often use bridging loans to purchase properties before the sale of their current home has been completed, or to conduct improvements to subsequently sell their homes at a higher price.
Commercial customers use bridging loans to purchase investment properties, cover business expenses, get new businesses off the ground, conduct urgent repairs of rental properties, buy properties at auction, cover urgent tax outgoings and so on.
How Much Does Bridging Finance Cost?
Bridging loans are strictly short-term financial products, which must be repaid as quickly as possible to maximise cost effectiveness. Monthly interest rates can be as low as 0.5%, potentially reaching as high as 1.5% elsewhere.
What Additional Fees Apply with Bridging Loans?
Additional fees and commissions charged by (some) lenders can make a major difference to the affordability of a bridging loan. The following must be considered carefully and discussed with your broker before going ahead:
- Lender arrangement fees – anything up to 2% of the loan value.
- Exit fees – usually charged at the equivalent of one month’s interest.
- Early repayment fees – if the borrower repays earlier than agreed.
- Legal fees – sometimes included in arrangement fees but rarely.
- Surveyor’s fees – to cover the costs of the property valuation.
- Admin fees – additional costs bolted on by some lenders.
Each of these fees vary from one lender to the next, emphasising the importance of shopping around to ensure you get the best possible deal.
Who Can Qualify for Bridging Finance?
In short, anyone who has a viable asset to cover the costs of the loan and can comfortably afford the repayments. Even if you have an imperfect credit, you may still be considered eligible for a bridging finance.
What Are the Risks?
As with all secured loans, your property may be at risk of repossession if you do not keep up with your repayment obligations.
It is therefore important to discuss both the overall affordability of bridging finance and your general financial position with an independent broker, before submitting your bridging loan application.