Bridging Finance

Your home may be repossessed if you do not keep up repayments on your mortgage.

Bridging Finance, which is short term finance, allows someone to purchase or refinance a property extremely quickly, as it is usually based on the facts and figures of the property rather than the individual. Circumstances in which someone may need a bridging loan may be property development, business opportunities, a break in a purchase chain, auction purchases or to buy a property which is below market value to enable a client to subsequently take advantage of the equity built up in a property, hence lending on the value rather than the purchase price of the property. This is particularly useful as lenders usually have a ruling on how long a property has been owned for before they will allow a remortgage. Bridging lenders do not have this ruling, however most mainstream lenders in the current climate have a 6 month ownership ruling, which means that the bridging term will quite often start at 6 months. This can sometimes be incorporated with light development finance in order to use future projected rental income.

In the current economic climate, bridging has become somewhat restricted. Some lenders are prepared to lend almost on a non status basis where they do not concern themselves with checking the borrowers ability to pay and are primarily concerned with the asset as security, others are more cautious about analysing both serviceability and the feasibility of the proposed repayment of the capital. It is currently usual for a bridging lender to not all a roll up of interest unless the case is particularly strong, and whilst most lenders will only allow non-regulated bridging finance (where the property being purchased is not the residence of the purchaser, or if it is, only 40% or less of the property is used as their 'residence'), we have access to several regulated bridging lenders.

Bridging loans terms are typically from six to twelve months, however under certain circumstances where an exit (paying back the bridging finance) is less than this, then we will negotiate a shorter term in order to save money on bridging finance interest. The loan may be offered with either an open arrangement, where it is not established how you are intending to repay the bridging loan at that point; or a closed arrangement where a specific deal has already been set up such as the sale of the property where the loan is to be repaid, or refinance to a mainstream lender. Most bridging lenders however, will only allow closed bridging due to the current climate, and the security of an exit strategy. Open bridging therefore has a premium built into the interest costs.

Bridging finance is traditionally extremely expensive due to the fast financing on less explicit checks. As an average, you can expect to pay between 1%-2% depending on the perceived risk of the deal to the lender. With our extensive experience in this type of finance, we look to negotiate the best terms with the lenders we have longstanding relationships with, and ensure that the deal is structured in the best possible way for your individual circumstances. This will include an extensive breakdown of the costs involved, and arranging the quickest possible exit if refinancing is your intended exit.

Bridging Finance is not regulated by the FSA.