Bridging finance: what options are available?

bridging finance

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Bridging finance is a type of short-term loan that is used to bridge the gap between the purchase of a new property and the sale of an existing one. It is a popular option for property developers, landlords, and homeowners who need quick access to funds. In this article, credicus explores the different options available for bridging finance in the UK and how they can benefit you.

What is bridging finance?

Bridging finance is a type of short-term loan that is typically used for property transactions. It is designed to provide quick access to funds, usually within a few weeks, to bridge the gap between the purchase of a new property and the sale of an existing one. This type of finance is often used by property developers, landlords, and homeowners who need to secure funds quickly.

How does bridging finance work?

Bridging finance works by using the property being purchased as security for the loan. The lender will assess the value of the property and offer a loan based on a percentage of this value. This is known as the loan-to-value (LTV) ratio. The LTV ratio can vary depending on the lender, but it is typically between 65-75% of the property’s value.

The borrower will then need to pay interest on the loan, usually on a monthly basis, and the loan will need to be repaid in full at the end of the term. The term of a bridging loan is usually between 1-18 months, but it can be longer in some cases.

What are the different options for bridging finance?

There are several options available for bridging finance in the UK, each with its own benefits and considerations. Let’s take a closer look at some of the most common options.

Closed bridging finance

Closed bridging finance is a type of bridging loan that has a fixed repayment date. This means that the borrower knows exactly when the loan needs to be repaid, usually within 1-12 months. Closed bridging finance is often used when the borrower has a clear exit strategy, such as the sale of a property, and knows when they will be able to repay the loan.

Open bridging finance

Open bridging finance is a type of bridging loan that does not have a fixed repayment date. This means that the borrower does not have a clear exit strategy and may need to extend the loan term. Open bridging finance is often used when the borrower is waiting for a property sale to complete or for funds to become available.

Regulated bridging finance

Regulated bridging finance is a type of bridging loan that is regulated by the Financial Conduct Authority (FCA). This means that the borrower is protected by the FCA’s rules and regulations, and the lender must adhere to certain standards. Regulated bridging finance is often used when the borrower is a homeowner or a buy-to-let landlord.

Unregulated bridging finance

Unregulated bridging finance is a type of bridging loan that is not regulated by the FCA. This means that the borrower does not have the same level of protection as with regulated bridging finance. Unregulated bridging finance is often used when the borrower is a property developer or a commercial landlord.

Auction finance

Auction finance is a type of bridging loan that is specifically designed for property auctions. It provides quick access to funds, usually within a few weeks, to purchase a property at auction. Auction finance is often used by property developers and investors who need to secure a property quickly.

Development finance

Development finance is a type of bridging loan that is used to fund property development projects. It provides funds for the purchase of land, construction costs, and other associated costs. Development finance is often used by property developers who need to secure funds for a new build or renovation project.

What are the benefits of bridging finance?

Bridging finance offers several benefits that make it an attractive option for property transactions. Let’s take a look at some of the key benefits.

Fast funding

One of the main benefits of bridging finance is that it provides quick access to funds. This can be particularly useful for property developers and investors who need to secure a property quickly. With traditional lenders, the application process can take several weeks or even months, but with bridging finance, funds can be released within a few weeks.

Flexible repayment options

Bridging finance offers flexible repayment options, which can be tailored to suit the borrower’s needs. This can include interest-only payments, deferred payments, or a combination of both. This flexibility can be particularly useful for borrowers who are waiting for funds to become available or who have a clear exit strategy.

No early repayment charges

Unlike traditional loans, bridging finance does not usually have early repayment charges. This means that if the borrower is able to repay the loan early, they will not be charged any additional fees. This can be beneficial for borrowers who are able to repay the loan sooner than expected.

No credit checks

Bridging finance is secured against the property being purchased, which means that credit checks are not usually required. This can be beneficial for borrowers who have a poor credit history or who have been turned down for a traditional loan.

How can I apply for bridging finance?

To apply for bridging finance, you will need to find a broker who specialises in providing this type of finance, such as credicus. Our advisors are available to discuss your requirements, options and best fit recommendations based on your needs: book a call today and speak to one of our experts.

Key takeaways

Bridging finance is a popular option for property developers, landlords, and homeowners who need quick access to funds.

With several options available, including closed and open bridging finance, auction finance, and development finance, there is a solution to suit every need. By understanding the benefits of bridging finance and how to apply for it, you can make an informed decision about the right options for you.

Property finance made simple.

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