Bridging loans are versatile short term loans that can be used for several financial requirements such as investing in business opportunities, buying a property at auction, property conversions and renovations and seizing investment opportunities.
The traditional use of bridging is when it acts as a bridge between selling one house and buying another. It is relevant when a buyer wants to buy a new home before they have completed the sale on their current property. A bridge may also be used to raise funds from a property that is on the market for sale, for immediate use and to be repaid when the property is sold.
There are however also other common bridge uses:
Refurbishment Bridge
Property Investors looking to purchase properties not currently in a habitable condition will struggle to get mortgages from mainstream lenders. Bridging can be used to buy the property and complete the necessary renovations before moving to a standard mortgage. It is important to consider how long the refurbishment will take. MR Mortgages have a range of lenders you can remortgage to once the work is complete, even if the work has taken less than 6 months. You can speak with one of the Network Bridge Advisers to establish first who will be the most cost-effective bridge lender, and then who will you be able to successfully refinance to when the work is done.
Medium Bridge (Or short term mortgage)
Medium-term bridge style loans for up to 5 years are now available. They tend to be priced cheaper than standard bridging, but more expensive than mainstream loans. They are used to provide time for the owner to make any arrangements they need with their finance or property to enable them to meet the mainstream lenders criteria. One example is someone who has recently started a Self-employed role and needs to build up income history before the main-stream lenders will consider a mortgage application.
Bridge for Speed
Bridging can be appropriate for individuals who have a bill that needs paying immediately, such as an unexpected VAT or Tax bill. Or it can be used if you need to raise money quickly for a new purchase or other reason. It is important to have a viable repayment solution in the coming months such as a property sale or refinance. Let the Adviser know what you need to raise the money for and how quickly and our adviser will compare the bridge option with other speedy options such as business loans.
Loan to Value (LTV) Bridge
A normal term mortgage is based on borrowing against whatever is the lower of the purchase price or the value of the property. Where a property is being purchased below its true market (BMV), such as a repossession or auction property, some bridge lenders will consider lending on the value of the property rather than the purchase price. This could increase the loan size that may otherwise have been available.
Planning your bridge exit route
Whilst bridging represents an effective solution in many cases, it should only be seen as a short term lending product as it is priced accordingly. It is therefore essential to consider how the bridge will be repaid and how quickly you can repay it. This is often referred to as the ‘exit route’. A typical exit route will be a refinance to a mainstream term lender or the sale of the property. If you already have bridging finance and need help with replacing this, contact our specialist bridge adviser now.