Bridging loans and short term property finance

Short-Term Bridging Loans

There’s no way to tell when the ideal investment property will come along. And in the meantime, your money may be locked into other investments and assets to help it grow. Short-term bridging loans give you the flexibility to act quickly when the opportunity to purchase property arrives, giving you the time you need to free up your money while effectively securing your new property.

What is a short-term bridging loan?

A short-term bridging loan quickly secures an asset or investment on your behalf, allowing you to bridge the gap between selling or reorganising your assets and making a purchase on a new asset. With real estate being such a competitive market requiring large sums of capital, this type of short-term financing is a practical and effective way of rapidly improving cash flow, building your property portfolio, and smoothing out the purchasing process.

There are several different types of bridging loans, including:

Regulated and unregulated bridging finance

Regulated bridging loans are required for a property that you or a member of your family have lived in for the last 12 months or intends to live in. Unregulated bridging loans are applicable when you are purchasing property for residential or commercial investment. A regulated loan has slightly higher eligibility requirements than unregulated bridging finance.

Fixed or variable rate

Fixed interest rates will not change during the period of the loan period, keeping monthly payments consistent. Variable rates fluctuate up and down over time. The interest rate will be based on an underlying benchmark rate, selected by the lender, that will change periodically as market interest rates change.

First or second charge bridging loans

If you are securing the loan against a property with no existing mortgage or other financing secured against it, it is called a first charge loan. If there is a mortgage or other loan already on the property, it will be a second charge. In the event of the property being repossessed, this determines the order for creditors to be repaid.

These loans vary in their term and fees depending on the lender. Typically, they can be granted within a day or two and can have a term of anything from a few days to around 3 years. They can be made to an individual or a company and can be used in residential, buy to let, and commercial property purchases.

What are the advantages of short-term bridging loans?

These loans have plenty of benefits, as they allow you to:

• Quickly secure financing – Loan approvals happen rapidly (usually in a couple of days at the most), allowing you to act quickly on an investment opportunity.
• Easily secured – This short-term financing can be secured against many different types of assets, including residential or commercial property.
• Minimal eligibility requirements – The eligibility requirements for this type of financing are usually much more generous than typical loans or mortgages. Eligibility will differ from lender to lender, but some do not even require proof of income.
• Customisable – Short-term bridging loans can be tailored to a client’s requirements, and many lenders will create a bespoke loan solution to suit your particular needs.

What are the disadvantages of short-term bridging loans?

These loans are not without their drawbacks, and these must be considered to help find the right financing solution for your needs. These loans have the following disadvantages:

• Short-term – These loans are not intended for long-term use. The smaller the window of time you require the loan, the more favourable it is to you.
• Higher rates – Short-term loans typically carry higher interest rates because the loan is intended to be in effect for a very limited amount of time. As a result, it’s essential to have a clear idea each lender’s monthly payments and fee structure and that you have a clear exit strategy for paying off the loan and fees when it becomes due before you commit.

Who can apply?

Anyone can apply for a short-term bridging loan. This form of financing usually has some of the lowest eligibility requirements because they are secured against property you own. This provides the lender with very good security for their loan, as they are legally allowed to seize these assets if the loan goes unpaid to regain their investment.

Short-term bridging loans are often used in the following property purchases where rapid access to good cash flow is essential:

• Property auctions – When purchasing a property at auction, a 10% deposit is usually required on the day, followed by the remainder of the sum within 28 days or less.
• Purchase a property that does not qualify for a mortgage – Properties that are in very poor condition can be very challenging to secure using a BTL or residential mortgage. A short-term bridging loan can be secured against the home’s current value of the home itself, making it a much easier way to secure financing.
• Bridging the gap between purchasing and selling property – The loan allows purchasers to secure the new property before completing the sale of an existing property.
• Property development – Developers need to be able to act quickly when a development opportunity goes on the market, but the cash flow is not usually available., e Especially for large projects. A short-term loan allows developers to secure the property without impacting regular business cash flow.
• Avoiding forced sale – A bridging loan can be used to pay off a debt to prevent a property from being repossessed,. This allowings owners to sell on their own terms rather than at a forced sale.
• Property refurbishment – This is financing that is available to property investors, landlords, and developers who want to upgrade investment properties before being rented out or sold.

Find the Best Short-Term Bridging Loan Deals in the UK

Mortgages for Business, we have access to the best short-term bridging loan deals in the UK. As independent brokers, we have strong relationships with a wide network of lenders who will work to find a lender – and a financing plan – that works to your best advantage. Our team has over 20 years of experience as mortgage and financing brokers, and we’re ready to help you move forward with your property portfolio. With extensive experience working with BTL property investors, residential property investors, commercial property investors, and property developers, we’re dedicated to delivering short-term financing that is affordable, ethical, and competitive.