Short term funding, or as it is more commonly known, bridging finance, is probably the most under used form of financing. A bridge can provide fast access to funding with the minimum of formalities.
Bridging finance can be used in a number of different circumstances, e.g. refurbishment – buying dilapidated properties and then renovating and selling them in a short space of time. One of the most common usages is when people buy a new property before their present one is sold – “a bridge”.
With bridging finance, the loan will always be secured against residential or commercial property. A first or second charge will be taken against new or existing property, or a combination of both.
Another great use for bridging finance is for people who purchase property at auction, where funds are required quickly. Bridging is much quicker to arrange than a normal residential mortgage; on average 7-10 working days from first enquiry to completion.
There are two types of bridging loans:
Regulated Bridging Loans
If the loan is a Regulated Mortgage Contract, we will only be able to assist you if you apply through your financial advisor. We will be happy to introduce you to a financial advisor if you do not have one at present.
Not Regulated Bridging Loans
We will be able to assist you directly if your loan is not a Regulated Mortgage contract e.g.;
- You are offering us a 1st charge over residential property which is not and will not be occupied by either you or any member of your family (e.g. a buy to let), or;
- You are offering us a 2nd charge (over any kind of property) or;
- You are offering us a 1st charge over semi commercial property of which less than 40% is occupied or will be occupied by either you or any member of your family or;
- You are offering us security over commercial property or;
- You are using a limited company to purchase the property being offered as security
Real Life Bridging Loan Case Studies
Auction Purchase
A customer was successful in purchasing a property from auction for investment purposes, but had a deadline to complete of 28 days. Although the customer’s bank agreed the finance in principle they would have struggled to complete the loan within the timescale needed. The customer did not wish to lose his deposit so he got a bridging loan, this meant he was able to complete the loan within 5 working days. The customer was then able to re-mortgage with his bank to redeem the bridging loan.
Capital Raising
A customer had an outstanding VAT bill and was given a final demand to pay the bill within one week. The customer was in the process of re-mortgaging a portfolio of buy-to-let properties but was not be able to release the equity in time to pay the outstanding bill. The customer did not want to risk waiting for the re-mortgages to complete so he contacted got a bridging loan and was able to complete the loan within 48 hours. The customer’s re-mortgages completed shortly after; which redeemed the bridging loan.
Discounted Purchase
A customer was offered the opportunity to purchase the last house in a new development at a discounted price providing the sale completed within 2 weeks. The customer contacted a number of high street banks who had agreed to the loan in principle but could only lend based on the purchase price, not the value. Due to the timescale involved and the fact that the customer had very little cash equity to help fund the purchase, the customer had to find a lender who could lend the funds within the 2 weeks, as well as lend against the property’s value. The customer successfully got a fast bridging loan, the person was not only completed the deal within 4 working days but was able to lend the full purchase price due to our ability to lend against the value of the property, not just the discounted purchase price. The customer was then able to arrange a buy-to-let re-mortgage to redeem the bridging loan.