The latest reports from the Association of Short Term Lenders are in, and they’re impressive: in the third quarter of 2023, bridging finance saw a record surge. Applications jumped over 8%, completions nearly 11%, and loan books expanded by more than 18% compared to the previous year. So, it’s a good time to cover the basics of bridging finance, and how to get it.

What is Bridging Finance?

At its core, a bridging loan is a short-term financial solution, usually secured against property. It’s designed to ‘bridge’ a financial gap – perhaps between buying a new property and selling an old one, or for funding refurbishments before selling or renting out a property.

Key Features of Bridging Loans

• Duration: These loans typically last between 12 months and two years.
• Flexibility: They can be arranged quickly, perfect for tight deadlines.
• Interest Payment: Unlike traditional loans, the interest on most bridging loans is paid at the end of the term, not monthly.

Regulation and Safeguards

Some bridging loans fall under the oversight of the Financial Conduct Authority (FCA). This is especially true when the loan is secured against a property that the borrower or their family occupies or plans to occupy.

The Exit Strategy – Your Repayment Plan

An essential part of a bridging loan is the exit strategy – how you plan to repay it. Popular methods include selling the secured property or refinancing with a long-term mortgage. It’s crucial to have a reliable and realistic exit plan, possibly with backups, to ensure smooth repayment.

Popular Uses of Bridging Finance

Rescuing Property Chains with Chainbreaks

When a property chain breaks because a buyer pulls out, it can jeopardise the entire chain. Bridging loans can rescue such situations by providing the necessary funds to proceed with purchases.

Auction Purchases – Quick Cash for Quick Sales

At property auctions, winning bidders typically need to pay a 10% deposit immediately and complete the purchase within 28 days. Bridging finance can be a lifesaver here, offering quick funds for both purchase and any needed renovations.

Property Refurbishment

Investors are increasingly turning to rundown properties, renovating them for a better resale value or rental income. Bridging loans can fund these refurbishments, whether they are minor updates or major overhauls requiring planning permissions.

HMOs and MUFBs – Investing in Shared Spaces

Investors seeking strong returns are eyeing Houses of Multiple Occupation (HMOs) and Multi-unit Freehold Blocks (MUFBs). Bridging finance can cover both the purchase and conversion costs for these high-return properties.

Development Exit – A Lifeline for Developers

Property developers, often cash-poor towards the end of a project, can use bridging loans to buy time, avoid defaults, and potentially fund future developments. This solution is especially useful for those planning to sell or rent out their developments.

Business Ventures and Cash Flow

Interestingly, bridging loans aren’t just for property purchases. They can also help business owners kickstart new ventures, expand, invest in equipment or manage short-term cash flow issues, particularly relevant in the current cost-of-living crisis.

In Summary

Bridging finance is more than just a loan; it’s a versatile tool for property buyers, investors, and business owners. With its recent surge in popularity and flexibility, it’s an option worth considering for anyone looking to make a strategic move in today’s dynamic market. Just remember, like any financial decision, it’s crucial to consider your options, assess the risks, and plan an effective exit strategy.