What is Bridging Finance?

…as the name suggests, a loan to bridge the gap between the purchase of a property and an exit of the bridging finance either by way of sale of one of the properties, a remortgage to clear off the bridge or a combination of both sale and remortgage to clear the outstanding debt.

As a standard, bridging loans are taken over a 12 month term where there are no early repayment charges other than up to the first three months interest payments (this is dependent on lender). This means that if you look to repay the loan within the first three months of drawdown, you would be liable for a full three months interest payment. Any repayment following the three months will simply be based on however long the loan has been taken out for.

Lenders typically look to ‘roll up’ the interest payments as well. This is where the interest is added to the loan on a monthly basis and repaid in full along with the initial loan taken. The rolled up interest provides the benefit of having no additional expenditure throughout the term of the loan however, the rolled up interest is included in the lenders maximum loan to value which his typically 70-75% of the value of the properties owned.

Bridging lenders look for mainly 2 things to assess their application, the value of the securities and how the loan would be repaid. As long as there is a suitable exit in place, either that the sale of the currently owned clears the lending in full or that we are able to prove that a standard mortgage is available to cover off any shortfall from the repayment, the lender is likely to accept the application.

Bridging can be utilised to simply purchase a further property whilst the sale of a currently owned property goes through or alternatively, it can be utilised to enable clients to purchase a property to preform refurbishments as the property would not be in a suitable condition for a standard mortgage.