Bridging Finance 

< previous | next >

This type of finance is used when a property needs to be purchased quickly for example buying at auction or refinanced quickly to raise cash.

Bridging Finance is normally set up for between three and six months with the secured property being sold or refinanced during that period.

If a property can be bought cheaply and possibly requires refurbishment, Bridging Finance can be used for the initial purchase. Once the refurbishment is complete, the property can be refinanced at the increased value which can allow some of the original capital to be released again.

The reason Bridging Finance is usually faster than normal bank or mortgage funding is that the loan underwriting is carried out against the property valuation alone and does not look at the borrower's ability to buy or the reason behind the purchase.

The valuation is, therefore, a crucial part of Bridging Finance. Some lenders will use any valuation that a borrower has, while others insist upon using a valuation firm that they feel comfortable with.

Apart from the valuation the other crucial factor for a Bridging Company is the ability for them to get clear title to the property, if there are any problems with the title it may prevent the Bridging loan or it may slow it up.

Some lenders also want to see how a borrower intends to refinance the Bridging Loan and whether they have the ability to refinance before the end of the term. This type of Bridging Company has not been common. It may become more common, however, if the property market remains difficult.

Speed of decision

Once a Bridging Company has a valuation, it can normally confirm within 48 hours whether it is prepared to lend and at what cost. Without a valuation the company can provide a decision in principle subject to valuation within the same 48 hour timeframe.

Loan terms

A Bridging Company normally looks for a minimum loan period of three months and a maximum of six months. There are exceptions, however, and some lenders are prepared to lend for a longer period of time. If the loan is repaid within the three month period there will normally be a redemption fee.

Interest rate

Interest on Bridging Finance is charged on a monthly basis at rates of between one and two per cent per month. When rates are lower, there will probably be additional fees. Higher rates are also used if the asset to be bridged is a development site or a commercial property.

Do you have a Bridging Requirement?

If you want to discuss Bridging Finance please contact Smartlandlord^® to speak with one of our independent Bridging Finance advisers.   

< previous | next >