Bridging Finance: An Overview of the UK Market

Bridging finance, also known as a "bridge loan," has its roots in real estate and property markets, where it emerged as a flexible short-term funding solution to bridge gaps between transactions in the mid-20th century.

It was initially designed for homeowners needing funds to complete a property purchase before selling their existing home. These loans provided quick liquidity, ensuring buyers didn’t miss out on opportunities due to timing mismatches. Moving into the 21st century, bridging finance today has evolved to become a sophisticated financial tool, with a variety of use cases, for both individuals and businesses.

They are typically paid back between a few weeks to a few years, unlike traditional mortgage finance is typically arranged over a multi-year horizon, typically 25 years. This allows individuals to access funding in the short term until they have a long-term solution available to them or an exit in mind. Interest rates vary. However, they are typically higher than traditional loans due to their short-term nature.

Bridging finance remains a vital and popular tool for many requiring quick access to capital, with application volumes steadily increasing in recent years. Within this article, we explore the latest trends and structures in the UK bridging finance market today.

What is Bridging Finance?

Ultimately, bridging finance is a flexible solution for those needing to borrow money for a short period. There are many reasons to use a bridging loan, including but not limited to:

• Purchasing a property quickly: an example of this is with auction purchases
• Bridging the gap between buying and selling a property
• Refurbishing a property before selling
• Needing a short-term loan for business cash flow needs

Types of Bridging Finance Providers

There are numerous lenders in this space, which is why many seek the help of a broker to navigate the full market breadth and depth. Within the UK these include:

1. Private Banks

Private banks are a popular solution due to their flexible underwriting process, tailored for the high-net-worth (underwriting is the process of reviewing loan applications to determine if the borrower is eligible for a bridging loan). Private banks are more likely to consider non-traditional financial profiles. These banks are a good option for those needing a hyper-personalised and tailored solution.

2. Specialist Lenders

Specialist lenders focus on particular areas. These include situations like property development or business financing. If an individual needs a solution provided by specialist lenders, they may find that the process is faster and likely to be more bespoke than traditional banks.

3. Peer-to-Peer

Peer-to-peer platforms are where investors fund bridging loans directly. These loans offer more competitive rates and often have a smoother application process. They are particularly popular when needing a smaller and shorter loan.

4. Building Societies

Some building societies now offer short-term mortgage products, particularly when a customer is between selling and buying a property.

5. Private Equity and Family Offices

Private equity firms and family offices provide flexible, case-by-case funding solutions. These often prioritise risk-amended returns, allowing for complex financial structures and higher LTVs.

Regulation and Consumer Protection

Bridging financing includes both regulated and unregulated lending as follows:

• Regulated Lending: Covers residential properties where borrowers occupy at least 40% of the property. These loans are controlled by the Financial Conduct Authority (FCA)
• Unregulated Lending: Typically includes loans for commercial purposes, property development, or investments, which are not subject to the same consumer protections

Why Choose Bridging Finance?

Bridging loans offer many advantages, which include:

• Speed: Applications are processed faster than more traditional loans
• Flexibility: Loans are tailored to the individual's needs and are often without early repayment penalties, which could be added when going down a more traditional lending route
• Short-Term: Loans are ideal when needing to "bridge' a gap when in need of cash for a short period

Disadvantages:

• Higher Cost: The potential for higher interest rates due to the short-term nature of the loans means it is vital to seek professional advice. But remember these rates of interest are payable over short periods versus a conventional mortgage loan

Partnering with Experts

At Global Bridging Finance, we pride ourselves on offering expert advice and bespoke financial solutions. We have access to a large number of bridging finance providers, allowing us to tailor the loan to your unique requirements. Our experience can save time and search the whole market, something that many find challenging when pursuing this route themselves.

Our Expertise Includes

• Structuring deals, including global assets
• Tailoring solutions for those with complex income streams
• Identifying suitable and bespoke exit strategies
• Minimising costs through careful negotiation, allowing for the individual to have the best rates the market can offer

Bridging finance remains a vital and popular tool in the UK financial landscape, offering an array of solutions to both individuals and businesses. With a competitive market, multiple innovative platforms, and tailored solutions available, borrowers can leverage bridging loans effectively for various needs, ultimately allowing them to reach their end goal efficiently and safely.

Get in touch today and speak to one of our expert brokers or download our guide that goes into further detail. We're here to help!

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