The Beginner’s Guide to Bridging Finance

Published: 27/02/2019

Bridging finance can be a confusing topic. This type of transaction is extremely fast paced - it’s very much ‘ready, set, go!’ - so often clients can get a bit muddled during the process. To help things go a little smoother for you, we’ve created this beginner’s guide to all things bridging finance. Let’s start with the basics… 

What is Bridging Finance?

Think of bridging finance as a type of short-term loan (STL) you use when buying, remortgaging or improving a property. It covers a temporary gap in finances, for a short period of time. 

As the name suggests, bridging finance ‘bridges the gap’ for property buyers and owners. 

How long is a bridging loan? 

A bridging loan will usually be granted for a period of 12 months or less. It’s a quick, temporary cash injection, when funds are not available elsewhere. Keep reading on for examples and more information. 

What types of bridging loans are available?

Closed bridge:

This is when the borrower has a set date by which they must repay the short-term loan. You may decide to take out a closed bridging loan if you have a set date for when the conveyancing process will be completed. The date the sale is finalised would coincide with the repayment of the loan, for instance. 

Open bridge:

An open bridging loan is the most common type of STL. While the borrower will have an exit plan in place, there is no definite date by which you must repay it. It’s more flexible - when you’re not exactly sure when the money will become available for you to repay the STL. 

What are the main uses of bridging loans?

There are many reasons why you could need a bridging loan - maybe you’ve committed to a house purchase and your mortgage hasn’t come through yet; you could be a landlord or a property converter and need the STL to raise funds temporarily; or maybe you want to fund some home improvements, so you can sell your property quicker.

Some common reasons clients need a bridging loan include:

- To quickly secure a property/get your dream home fast (you’ve found your dream property unexpectedly and need a quick cash injection to make sure the home is yours)

- In order to break the chain, when your property sale collapses, but you’re determined to secure the property you are buying regardless  

- When building a house (fulfil your grand-design dream) or converting a property (e.g. turning a barn into a home)

- Purchasing a property at auction

- If you are purchasing an unmortgageable property (traditional mortgages are rejected because the property has no bathroom, for instance)

- To fund renovations (e.g. loft conversion)

- For HMO (house in multiple occupation) refurbs 

Other examples

‘Flipping’ a property

Some clients take out a bridging loan because they don’t intend to hold on to that property for very long, but require some extra funds to help them shift the property quickly. For example, you may wish to make some improvements to the property to increase its value and sell it for more.

Similarly, you could also refurbish the property, thereby increasing its value, enabling you to lock in a better mortgage rate (see our page on remortgage), as you can now borrow against the higher value. 

The ‘bridge’ is that little bit of extra money required for homeowners or landlords to achieve these goals. 

When speed matters 

Often there are scenarios in the property world where speed really does matter. As a bridge can be arranged in a matter of weeks or sometimes even days or hours, it could allow you to lock in a great deal quickly. 

Sometimes there are situations where an owner wants to sell a house really quickly (maybe the property is in a state of disrepair or the owners are moving abroad). 

Likewise, savvy investors may not want to hold on to properties for long, if the market has taken a turn. Bridging finance can provide property owners with the cash required to refurb or renovate, so the house or apartment can be sold on for profit, fast. 

What is the difference between bridging finance and a mortgage?

Time is the big difference. Usually a mortgage is taken out for a period of 20 years or more, whereas a short-term bridging loan is ordinarily paid off in 12 months or less. You can also get a STL on a low income, with far less conditions than a mortgage. 

How much can I borrow?

The size of the loan will depend on many factors, such as the value of the property and your household income. You’ll need the get advice on exactly how much you’re eligible to borrow. 

How loan will it take to get a bridging loan?

A bridging loan will usually take between 7 and 28 days (sometimes more, sometimes less) to secure. In some cases, you can take out a bridging loan in as little as a few hours. If your case is urgent, you will definitely need a good property solicitor to help you out. In fact, all bridging finance does require legal assistance. 

What types of transactions do bridging loans cover?

- New residential property

- Buy-to-let purchases

- Quick completion of a property purchase

- Auctions

- Housing developments

Why should I consider bridging finance?

A STL is quick and flexible. It can allow you to take advantage of property opportunities as they arise and secure a deal quickly. 

With GWlegal, you can also expect

• Proactive communication – we return telephone calls within four working hours
• Speed – All other forms of correspondence, we turn around in 24 hours or less      
• Experience - We are experts in property; you can always count on us. 

Why are we the best solicitors for you?