Short Term Finance (Bridging Finance)
Auction finance, Chain break finance, Refurbishment loans & Development Finance
- Get finance quickly even on unmortgageable properties
- 100% Loan to Value (LTV) available with additional security
- 85% Loan to Value (LTV) bridging for renovations
- 70% Loan to Gross Development Value (GDV)
- 100% of works funded in arrears
- Quick Completions
- Individual names or Limited Company available
- Interest Only
- Second Charge Finance
Bridging Finance Explained
Bridging finance is a short-term loan designed to "bridge" the gap between a financial need and a longer-term solution, such as securing permanent financing or waiting for a property sale to complete. It is typically used when an immediate cash injection is required and a more traditional form of financing (like a standard mortgage) isn’t available or suitable.
Bridging loans are often used in property transactions, development projects, or to manage cash flow during transitional periods. They are particularly useful in situations where a quick decision or action is needed.
Key Features of Bridging Finance:
- Short-Term Nature: Bridging loans are typically for a short duration, ranging from 1 to 18 months, with the average loan term being around 6 to 12 months. They are meant to be a temporary solution, with the expectation that the borrower will secure longer-term financing or have their property sold or refinanced within this time.
- Fast Access to Funds: Bridging finance is known for being quick to arrange, with funds often available in a matter of days or weeks, depending on the lender and the complexity of the transaction. This speed is one of the main reasons bridging finance is often used in situations where timing is crucial.
- Bridging finance is typically secured against property, meaning the lender takes a charge over the property or assets involved in the loan. If the borrower fails to repay, the lender can seize the property to recover the loan amount. The property could be residential, commercial, or land, depending on the loan’s purpose.
Types of Bridging Loans:
- Closed Bridging Loans: This type of loan is used when the borrower already has a clear exit strategy in place, such as a property sale or refinancing, and can specify a fixed date for repayment. It is often less risky for the lender and may come with better terms.
- Open Bridging Loans: An open bridging loan is used when the borrower does not have a clear exit plan or timeline for repayment, but they know they will need funds for a limited time. These loans tend to have higher interest rates due to the higher risk involved.
Common Uses of Bridging Finance:
Refurbishment and Renovation
Investors and property developers use bridging loans to finance property refurbishments or renovations. The loan is typically repaid when the property is sold or refinanced, once it has been improved and its value has increased.
Property Development:
Developers often use bridging loans to finance the purchase of land or property while awaiting planning permission or the completion of construction. Once the property is developed or sold, the loan is repaid.
It can also be used to cover the initial stages of a project when long-term development financing has not yet been secured.
Buying a property before selling an existing one:
If you need to purchase a new property but your existing property hasn’t yet sold, a bridging loan can provide the funds to buy the new property without waiting for the sale to complete.
Auction Purchases:
When buying property at auction, buyers often need to settle quickly (typically within 28 days), but may not yet have permanent financing in place. Bridging finance can ensure they have the funds to complete the purchase within the auction timeframe.
Self Build Finance
Looking to build your own home. This finance is based on your Income and also Paid Monthly so works out to have a cheaper Interest Rate.
Once you have finished building your dream home, you can then look to remortgage on to a normal residential mortgage afterwards.
Chain Breaks:
In property transactions where there is a chain of buyers and sellers, bridging finance can be used to prevent delays in the chain, enabling one party to move forward while waiting for others to complete.
Business Cash Flow
Bridging loans are sometimes used by businesses to cover short-term cash flow gaps, such as paying suppliers or meeting urgent expenses, while waiting for longer-term finance or outstanding payments to come through.
Debt Consolidation
Bridging loans can also be used by individuals or businesses to consolidate existing debts, providing time to restructure finances before longer-term loans are put in place.
Your guide to Short Term Finance (Bridging Finance)
What do these terms mean?
- Loan to Value (LTV) - The percentage of loan required against the properties value. Example - 75% LTV against a £100,000 property would be a loan of £75,000.
- Gross Development Value (GDV) - When completing a development, this value is the properties end value.
- Loan to Cost - The loan involves the property purchase price plus the cost of works, so the borrowing is based on a percentage of the two combined values.
- Loan to Gross Development Value bases the borrowing on the properties end value.
- Day 1 Advance & Tranches - The day 1 Advance is how much the lender is willing to lend you at the beginning of the loan. The subsequent segments of the loan will then be released through smaller loans at certain stages through out the build known as tranches.
This question depends whether you are borrowing just against the property/land or whether you also require the works to be funded as well.
- Standard Bridging - Lenders will typically lend up to 75% LTV against the value of a property/land OR upto to 100% LTV if additional security is provided.
- If the works need to be funded,> lenders will be able to lend against either the Loan to Cost or the Loan to Gross Development Value.
- Loan to Cost involves the property purchase price plus the cost of works. Example - 90% Loan to Cost
- Loan to Gross Development Value bases the borrowing on the properties end value. Example - 70% Loan to Gross Development Value
Retained Interest (All interest payments taken from loan at the beginning)
This is where the monthly payments are deducted from the Gross Loan at the beginning of the loan. For example if you get a 12 month bridging loan at 75% LTV. You would receive 75% LTV minus the 12 monthly payments which have already been Retained from the loan. You also pay interest based on the Gross Loan from the beginning. An easy way of getting a larger loan day 1 is simply reducing the amount of monthly payments needing to be Retained at the beginning. So if a project can be completed in 6 or 9 months. This would mean only 6 or 9 months payments would have to be retained instead of 12 months payments being retained.
Rolled Up Interest (Similar to Retained interest however a much cheaper option as you only pay interest as it is accrued)
This is where the interest is calculated more favourably. Instead of paying interest on the full Gross Loan from the beginning (such as with Retained Interest). You only pay Interest on what has been used so far. So if you had a 75% LTV bridging loan for 12 months, you would save money if the interest is Rolled Up as opposed to being Retained as you would only be paying interest on what you have drawn down and used.
Serviced Interest (Pay monthly)
This is where you decide to pay the interest monthly (like a normal mortgage). No monthly payments are deducted from the loan (such as with Retained or Rolled up interest), so with this option as you are making the payments yourself each month. You will need to be able to evidence you can service the interest payments through your income.
Yes - you do get a rebate
If you take a 12 month bridging loan to refurbish a property and finish the necessary works and refinance the property with in 6 months. You will only be charged for what you have used. So you would be rebated with the 6 months bridging finance you did not end up using.
Rates starting from 0.40% Per Month
- Rates start as low as 0.40% Per Month (4.80% Per Annum)
- For a free quotation, please call us now on 0204 518 2215
- Rates vary depending on circumstances and the loan to value required