Bridging finance is a surprisingly broad category of financial products, featuring specialist short-term loans for a wide variety of purposes.
In all instances, bridging loans share the same basic features and characteristics:
• A strictly short-term facility, repayable within 6 to 24 months
• Can be arranged at short notice, often in just a few working days
• Secured against assets of value, typically the lender’s home
• Charged at a monthly rate of interest of around 0.5%
• LTVs of up to 85% available from most lenders with no upper limits
• Can be repaid early without facing penalties
• No restrictions on how the funds can be used
• Open to applicants with poor credit or no credit history
Bridging finance is therefore particularly useful in time-critical scenarios, where traditional loans and mortgages would take too long to arrange.
In terms of the specific types of bridging loans available, the following are some of the most common forms of bridging finance:
1. Bridge-to-Let
This is a popular product among new and established landlords, used to purchase properties to be let out to tenants. Bridge-to-let effectively combines a short-term bridging loan with a longer-term BTL mortgage – the former automatically transitions into the latter after a few months. Investors are able to purchase rental properties at short notice, conduct any necessary renovations and let them out to tenants to generate profits.
2. Chain Break Finance
Increasingly, homeowners are turning to bridge finance as a solution to the trappings of conventional property chains. With chain break finance, customers can borrow against the equity in their current home, use these funds to purchase their next home, and repay the facility in full when their previous home is sold; a useful way to beat competing bidders to the punch, with housing market competition at an all-time high.
3. Refurbishment Finance
The refurbishment finance can be taken out by investors, BTL landlords, and conventional homeowners alike. It is a short-term product to cover the costs of property renovations, typically ahead of the home being listed for sale. Refurbishment finance enables property owners to maximize the value of their assets in order to ensure they sell for the best possible price, before repaying the loan.
4. Auction Finance
Homes and commercial properties often go under the hammer at auction for far less than their true market value. However, the full price agreed needs to be paid within 28 days. As bridging finance can often be organized and accessed in less than two weeks, it is ideal for funding time-critical investment opportunities like these.
5. Cash Buyer Benefits
Those who use bridging finance to purchase properties outright gain access to the same benefits as cash buyers. A recent study found that across the UK, the average discount property sellers are willing to offer cash buyers is around £70,000. In London, the figure is closer to £150,000.
6. Small Business Bridging Finance
Small businesses are particularly susceptible to temporary financial ‘hiccups’ and cash flow shortages. From purchasing essential business equipment to covering staffing costs to unexpected tax bills, bridging finance can provide a cost-effective short-term solution for small businesses in need. Unlike most conventional business loans, no proof of experience or track record is necessary to qualify for bridging finance.
7. Divorce Settlement Finance
There are specialist bridging products available that can help two separating parties complete their divorce settlement as quickly and painlessly as possible. The funds raised can be used to cover all professional and legal costs, while ensuring the fair and amicable division of assets. Divorce settlement finance has the potential to make one of life’s most challenging times at least a little less distressing.