Navigating Property Bridging Loans: Essential Tips for Securing Financing
- Jimmie Baillie
- May 13
- 3 min read
Introduction
Property bridging loans are a useful tool for property developers and investors alike. Their short term nature and flexibility make them useful tools for investors who need to act quickly to secure limited time opportunities.
What is a Bridging Loan:
A bridging loan is a type of short term finance used to take advantage of a limited time opportunity by bridging the gap between a present expense and a future cash flow. Bridging loans are offered in the UK by a number of different lenders, ranging from banks to specialist bridging lenders.
Bridging loans are generally used for a shorter term than traditional finance, typically between 3 and 24 months. As a result of their short term, bridging loans generally carry higher interest rates and fees, making them an expensive form of property finance. While there are a number of different applications for bridging loans, one of the most common is for the purchase of a new property before the sale of an existing property.
In this way, borrowers are able to access liquidity on their otherwise illiquid asset (their property). Then, once their existing property is sold, they can repay the bridging loan. When assessing a bridging loan application there are a number of factors the lender will consider.
Firstly, the lender will consider the security property. In the case where the borrower cannot repay the loan, the lender will have to repossess the property and sell it to recoup their loan. With this in mind, it is important that they deem the property to be adequate security. One of the ways in which they do this is by carrying out a valuation, which will advise the lender on the sale price of the property.
Moreover, the lender will evaluate the borrower and their ability to repay the loan. Generally the borrower will have a planned repayment strategy. Commonly, the borrower will repay the loan with the proceeds of sale from their property.
How to secure a bridging loan:
Bridging loans are generally easier to secure than traditional mortgages, this is as a result of their short term nature and defined repayment strategies. Nevertheless, it is important to consider how to maximize your chances of securing a bridging loan.
Firstly, borrowers should ensure that they have a clear exit strategy. As previously mentioned, the lender will heavily scrutinise the borrower's exit strategy, taking into account how and when they intend to repay the loan. While some borrowers will have more certain exit strategies than others, there are some widely accepted exit strategies: refinance the facility onto a longer term mortgage, sale of the property, repayment of the facility with cash.
Secondly, the borrower should ensure that they consult with a mortgage broker prior to beginning their bridging loan application. Mortgage brokers are skilled financial intermediaries who have a wide network of bridging loan lenders, each with their own products. In this way, mortgage brokers can ensure that their clients are accessing the best mortgage products from the best lenders.
Moreover, bridging loan lenders may have strict application procedures and processes. Mortgage brokers can leverage their industry knowledge and experience to guide their clients through the application process. Finally, when applying for a bridging loan it is important to be transparent with the lender from the initial phases in the application. Full transparency will ensure that the lender can make an accurate lending decision from day one.
Conclusion
In conclusion, bridging loans are a useful tool for property professionals. Their ability to offer borrowers quick and flexible access to finance is crucial in enabling borrowers to take advantage of limited time opportunities.
Furthermore, there are hundreds of bridging loan products on the market, making it crucial to enlist the use of a mortgage broker to help you navigate the market, obtain suitable terms and structure the deal. When used wisely, and with guidance, bridging finance can be a powerful tool to enable growth in a competitive property market.
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