What is Bridging Finance

Bridging finance is generally backed by real estate such as vacation homes, buy-to-let properties, trophy homes, and/or investment properties. It's an adaptable financial strategy that's particularly useful for wealthy people since it gives them the flexibility they need in a variety of financial circumstances.

Common Uses of Bridging Finance

One of the most popular uses of bridging loans, both in the UK and internationally, is to support property chain breaks, funding the purchase of a new property before selling your old one. It can also assist in releasing equity prior to refinancing with a different lender or when buying real estate at an auction when there is typically a short settlement period.

Bridging loans are also handy for:

• Renovating a property before putting it up for sale
• Upsising or downsising without undergoing a lengthy mortgage process
• Any scenario where quick access to funds is needed

According to recent market data, here are the most popular reasons for securing bridging finance:

Advantages of Bridging Finance

One of the big advantages of bridging finance is the speed because, unlike traditional mortgages which can take several months to secure, bridging finance is much faster, making it ideal for urgent financial needs, and while bridging lenders meet the same regulatory requirements, they can move much more quickly.

Another advantage is the flexibility since bridging finance offers a level of flexibility that larger mainstream lenders often can't match, with decisions being made quickly and often with room to tailor the loan to the borrower's unique financial situation, and Global Bridging Finance, for example, maintains close relationships with bridging loan providers to build customised loans that suit individual needs.

Lastly, there's the aspect of privacy because not all bridging finance is regulated and many smaller lenders operate in this space offering a greater degree of privacy. As these lenders focus more on the deal, the exit strategy and the security rather than delving deeply into your financial background.

Securing Bridging Finance

When it comes to securing bridging finance, there are two main approaches you can take, the first being directly approaching lenders which can be suitable for straightforward situations where a standard bridging finance package is adequate. This might be the way to go if your needs are pretty simple and you don't require anything too customised or complex. However, it can be hard to know who to approach and therefore time-consuming to reach out to multiple potential lenders.

Using an intermediary is the second strategy, which is frequently the best choice, especially in more complicated scenarios or where larger amounts of finance are required. Or you are an overseas borrower, or seeking finance in a country where you are not a resident or hold citizenship. 

Examples of Bridging Finance

• Example 1: Purchasing a New Home Before Selling the Current One
   
  • Scenario: You have found your dream home for £2 million, but your current home which is worth £1.5 million has not been sold yet​​​​​​
     
  • Solution: Secure a bridging loan of £1.4 million (considering a typical Loan-to-Value (LTV) ratio of 70% on the new property) to add to your existing cash reserves
     
  • Outcome: You can purchase the new home without waiting for the sale of your current home and once your existing property sells you can then repay and exit the bridging loan
     

• Example 2: Property Renovation

  • Scenario: You own a property currently valued at £1.2 million and plan to renovate it to increase its market value. Post-renovation, the property is expected to be worth £1.8 million​​​​​​

  • Solution: Secure a bridging loan of £700,000 to cover renovation costs and immediate financial needs

  • Outcome: After completing the renovations you can sell the property for £1.8 million and repay the bridging loan

• Example 3: Secure a Property at an Auction

  • Scenario: You aim to buy a property at auction valued at £1 million with a tight deadline for payment that is too short for a formal mortgage to be completed

  • Solution: Secure a bridging loan of £700,000 (assuming an LTV of 70%)

  • Outcome: Purchase the property within the auction deadline. At a later stage the property can be refinanced or sold to repay the bridging loan

Bridging Finance FAQs

1. What are the risks of bridge financing?

Bridge financing comes with certain considerations, such as:

• Higher Interest Rates: Typically, bridge loans have higher interest rates compared to traditional mortgages, but its important to remember these rates are payable over a much short time versus a traditional mortgage
• Short-Term Nature: They are intended for short-term use, which means there is a deadline for repayment, typically 3 years or less.
• Potential for Higher Costs: If your property doesn’t sell or if refinancing doesn’t go as planned, you could end up facing additional costs to extend the loan

2. Do I need a deposit for bridging finance?

Yes, usually you’ll need a deposit. Lenders typically ask for a deposit to reduce their risk, much like with traditional mortgages. The exact amount can vary depending on factors like the loan-to-value, size of loan, use case and the policies of the lender.

Why Choose Global Bridging Finance?

We specialise in sourcing bridging loans and short-term finance, that are tailored to your individual circumstances. Our commitment? To help you secure the best loan available, regardless of the amount you need or your intentions for it. You deserve the best deal that delivers on its promises.

We move fast and work hard so you don’t have to. Our personal approach to every deal means we go above and beyond to get you the finance you want, exactly when you need it.

Get in touch today and speak to one of our expert brokers. We’re here to help!