In this article
What is a bridging loan?
Bridging loans & property related transactions
Bridging loans – non property related uses
The difference between bridging loans and other loan types
How Fluent Money bridging loan advisers can help you
Bridging loan calculator
What is a Bridging Loan?
Bridging loans could be a suitable solution for you if you require access to cash quickly but your money is currently tied up in fixed assets. In this instance you could use the bridging loan to ‘bridge’ the gap and fulfil your financial goal temporarily whilst you wait for the cash to be released from your fixed asset.
Normally in the UK, bridging loans are offered on lending terms of 12 to 24 months with interest applied to each month then rolled up and repaid at the conclusion of the loan. The interest rate on a bridging loan is normally higher than a product designed for longer term borrowing and this is why they should only be considered a viable option for short term lending requirements. If you have longer loan term requirements then an alternative loan product may be more suitable, such as a mortgage or equity release plan.
Bridging Loans can be used in Property Related Transactions
Bridging loans for property development in the UK
- House chain breaks – cash from a bridging loan can be used to purchase one property whilst waiting for another to sell
- Meeting tight transaction deadlines within a residential or commercial property transaction
- Individuals and landlords wanting to make a quick purchase
- Properties currently at ‘wind and watertight’ stage that require completion
- Buy land – bridging loans can be used to purchase either residential or commercial land
- Buy to let – gaining additional income or assets through buying a property to then let it out. Bridging loans can be used as temporary measures to purchase a property initially if cash is tied up in another asset or perhaps if the property requires work to commence before it is deemed mortgageable
- Auction finance – most properties for sale via auction require a cash buyer as traditional mortgages will not support the purchase of an auction property. A bridging loan could be used to initially purchase the property until it fulfils the criteria of a mortgage lender
- Development Finance- building property out of the ground or heavy refurbishment where extensions and re-configurations are taking place
Bridging loan scenario: make home improvements, sell, downsize
The need to downsize often happens to a lot of people in later life. They simply do not need the space of a large house and could really do with releasing the extra cash from a downsizing move.
Perhaps you are in a situation where you would like to sell your existing home, but it requires a cash injection to do some home improvements to increase its value and make it stand out to prospective buyers.
If you don’t have the cash at hand to make the improvements then it could take a long time to try and save up the money, especially if you are retired and cash flow is limited. There are also additional costs to selling your home such as legal fees and stamp duty.
When making such a decision there are also many factors that can influence a situation. Perhaps your new ideal home is in a sought-after area where properties are hard to come by and you have found an ideal match sooner than anticipated.
In this situation, a bridging loan could be used to make the home improvements and purchase the new property. This could reduce the timescales involved, meaning that you end up in your new desired location much sooner than you would have by utilising the cash injection from the bridging loan.
Bridging loan scenario: house purchase requiring renovation works
Revamping a property means that you can take the opportunity to put your own stamp on it and create a design specifically to your taste. One way to achieve this is to purchase a property that is deemed ‘unfinished’ or ‘partially completed’ by high-street mortgage lenders, meaning that it requires renovation works to qualify as a mortgageable property. In this scenario a bridging loan could be used to carry out renovation works, and then once works are complete and final inspections have been signed off, the property could fulfil the criteria of a more traditional mortgage lender.
Over recent years trends to purchase properties such as old farmhouses requiring renovation works with land and outbuildings within the UK has increased. Main driving factors include the want for external space and people seeking a more rural lifestyle. This movement has been further driven by improved technological connectivity and increased hybrid working patterns. The increased popularity of online sharing platforms such as Airbnb have also seen the rise in people looking to utilise old outbuildings, extensive gardens and land to create holiday lets such as cottages, shepherd huts and glamping pods. Bridging loans could also be used in this scenario to get the initial development started.
Bridging Loans can also be used for Non Property Related Purposes
There are also many other circumstances where a substantial short term cash injection may be needed, some examples include:
Business related bridging loan uses
- Management buyout (MBO) – this is where a company’s management team sets out to acquire all or part of a company they manage. In order to do this, they will need to combine resources and put down capital to purchase the business. Bridging loans can provide some of the capital to do this over a short-term basis providing that security can be provided
- Cash flow for a business – a business may need to raise short term cash for many reasons including the purchase of assets or to pay for a tax bill. A bridging loan could be used as a temporary solution to provide the primary means to provide a business with a cash injection
Personal related bridging loan uses
- Pay an Inheritance Tax (IHT) bill – If any IHT is due to be paid on a person’s estate then this bill must be paid prior to probate (access to the assets of the estate). There are 3 main ways an executor (the person who is named in the will as responsible for dealing with the estate) can pay the IHT owed on an estate
- Cash in the estate – if the estate includes enough cash to cover the bill, then the executor can make a direct transfer to HMRC
- The executors can pay the bill out of their own pockets
- A bridging loan could be used to pay the bill secured on property assets that sit within the estate
- Cash flow for other personal uses – bridging loans can be used as short-term finance solutions to pay for unexpected bills, consolidate debt or repair credit
Fluent Bridging Loan Advisers
There are many potential circumstances where a bridging loan could provide a viable solution. These scenarios can sometimes be complex in nature and therefore it is a good idea to seek advice on which financial products and providers are suited to your needs. All Fluent Money advisors are qualified to full CeMap Level and they can answer any queries you may have regarding your individual circumstances and recommend suitable products.
At Fluent Money we understand the nature of circumstances surrounding bridging loan applications and know that you may need access to funds quickly. As a bridging loan broker, our qualified loan advisers can therefore progress an application from approval to completion in a matter of days, subject to all qualifying criteria having been met.
If you decide to go ahead and apply for a bridging loan, your appointed loan adviser will use a combination of expertise and the latest software to search the market and provide you with a range of competitive products. These products will be provided by bridging loan companies and will include the best bridging loan interest rates and terms that will suite your individual circumstances.
Fluent Money offer both regulated and non-regulated bridging loans for commercial and residential use. Perhaps you require a loan for property development or for a house purchase, whatever the reason, your appointed adviser will be able to talk through your individual circumstances, any criteria a bridging loan company may have and come up with the best bridging loan product for your situation.
Bridging Loan Calculator
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How is a Bridging Loan Different to Other Types of Loans?
Bridging loan and buy to let mortgage differences
A buy to let mortgage is taken out on a property that you do not live in. The main difference is that with a buy to let mortgage the lender will often have strict lending criteria about the projected rental income you will get for the property.
With a bridging loan the lender will have strict criteria with regards to the value of your fixed assets and the equity you have within them because these assets will be used as security. In certain circumstances you may decide to use a combination of these products. Say for example you intended to buy a property to renovate and then rent out. You may use a bridging loan initially to contribute towards the costs of buying the property and to carry out renovation work. Once the renovation work is complete you may then be able to apply for a buy to let mortgage to pay the bridging loan back.
Bridging loan and secured loan differences
A secured loan can also be used to raise capital in scenarios such as making home improvements to your home to then sell and downsize. Another example would be in a divorce or separation scenario where you wish to buy an ex-partner out of a jointly owned home.
Some of the key differences are that with a secured loan the repayment term is usually a minimum of 5 years however with a bridging loan the maximum repayment period is usually no longer than 2 years.
Other differences are that bridging lenders can be more flexible in terms of what assets you can secure the loan against and may accept assets such as land, partly completed properties and properties requiring extensive renovations. Secured loan lenders will normally require the loan to be secured against properties that are deemed mortgageable. Whilst a lender would lend for certain home improvements and renovations they would not lend in circumstances where the property requires extensive renovation works.
Bridging loan and equity release differences
Equity release plans have a minimum applicant age of 55 and are only suitable for people nearing or in retirement. Both plans can be useful within retirement. Equity release plans are typically for people who may want to release some cash from their home but they will still live in their home and they will also not want to pay the main share of the money back until some point in the far future.
Bridging loan and traditional mortgage difference
A traditional mortgage is normally taken out over a long repayment term. Most lenders will allow you to take out a mortgage over a term between 5 and 35 years. Lenders will look closely at your annual income and they are often strict on the condition of the property you are applying to get a mortgage on.
Both products could be used in a scenario where you purchased a property with a traditional mortgage and then decided to add an extension. You may be able to take out a bridging loan to carry out the extension works and then once completed get a revaluation of your property. If the value had gone up enough to apply for a mortgage extension or a secured loan you could then use that money to pay back the bridging loan and spread the costs back over a much longer term.
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