Bridging loans for short-term property finance
If you need to bridge the gap between buying and selling properties, our expert advisors are here to help. We specialise in matching your needs with the right bridging loan.
Our tailored bridging finance solutions are suitable for contractors, business owners, property developers and buy-to-let landlords alike.
What is a bridging loan?
A bridging loan is a form of short-term, secured borrowing.
Landlords and property owners often rely on bridging loans to fund their property purchases. The loans are a flexible alternative to mortgages, crucial when time is tight.
Lenders offer two types – open and closed:
Closed bridging loans come with a fixed date when you have to repay the loan. You agree the date with the lender to coincide with when you think you’ll have the funds available.
Open bridging loans have no fixed repayment date. However, bridging lenders tend to want the loan repaid twelve months from the date it was taken out.
When do you need a bridging loan?
A bridging loan can be an excellent temporary solution to securing your property investments.
Typical uses for bridging loans include, but are not limited to, the buying or financing of:
- Property in need of restoration
- Conversions to existing properties
- Undervalued property
- Land for development purchases
- Ad hoc purchases, e.g. at auction
How do bridging loans work?
The interest on bridging loans is high compared to residential mortgages. Plus, open bridging loans attract a higher rate of interest than closed. That’s because, without a fixed repayment date, the lender potentially faces higher risk.
Rather than quote an annual interest rate, the rates lenders offer are usually ‘per month’. You might see a rate of 0.75% and think that’s cheap. Not necessarily. The compound impact of 0.75% per month can be much higher than the annual rate quoted for residential mortgages.
To offset that higher rate, lenders often roll up the interest due on the loan. This enables developers and landlords to minimise costs while they have the loan. Then, when it’s due for payment, they repay the loan plus any accrued interest in one lump sum.
Contact our specialist broking team
Buying auction property with a bridging loan
Bridging loans are a popular way to fund auction purchases. Go to any major property auction and you’ll usually find a bridging loan broker there.
However, it’s advisable to understand what type of bridging loan you’ll need before you begin bidding. A good broker can get your loan pre-approved, allowing you to set a budget and be confident in your bid.
This is key, as auction houses often set a 28-day limit on you exchanging contracts after a successful bid. If you fail to meet that deadline, you could forfeit your deposit (usually 10%).
Talk to the experts
A bridging loan is an important business transaction.
Therefore, you should give it the due diligence that good business strategies demand.
The Freelancer Financials broking team
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Got questions or need assistance? We’re here to help. Whether you’re looking for mortgage advice, have specific queries, or just want to discuss your options, our expert team is ready to assist you. Reach out using the form here, and we’ll get back to you as soon as possible. Let’s connect and start making your homeownership goals a reality.
To speak to an adviser, please call us on 020 8421 7999
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