Bridging finance

What is bridging finance?

Bridging finance is a way of extracting cash from property assets on a short term basis. It is designed to meet the needs of applicants who are under liquidity or time stress, as opposed to those in financial distress. The most important thing to any bridging lender is the “exit” or “take out” route. This must be clear at outset. It may be through sale of the asset mortgaged; that is why the RICS open market value is critical or sale of another asset or re-finance on a longer term basis.

It can be more expensive than term finance (where the loan is set over a number of years); however the gain from using this product, in most cases, outweighs the costs of buying it.

Bridging Finance- at a glance

• Up to 100% funding available - Loan to value % based on an accurate open market value- Ideal for below market value (BMV) purchase.
• Funds available in as little as ten days- Great for situations where speed is essential e.g. Auctions, un-mortgageable properties etc
• Interest Rolled into the facility, where security is adequate- Ease the monthly cash flow
• Exit Mortgage Arranged if required
• “Closed” one day 100% bridges available- useful for completing at 100% of the purchase price, with exit being a same day re-mortgage based on the market value.

In short, what are the uses and benefits of using a “Bridge”?

Purchase at Auction
Bridging finance can provide funds in ten days on properties for development/uninhabitable etc. If you managed to pick up a bargain, the lender will work of the 90 day* value, as opposed to the purchase price. This may mean little or no deposit. In addition, if you can offer additional security, 100% funding could be an option.

The interest is charged at a rate per month, no front end loading here, and security permitting may be rolled into the facility, obviating the need to meet monthly payments whilst the bridge is in place.

Under value (closed bridge) residential purchase
A bridging loan can provide 100% purchase funds on inhabitable properties within ten days, with simultaneous long term funding take out. An example would be the purchase of a repossession property say 15% under value. The traditional high street route, would work on the purchase price, and not the value and this would be classed as 100% lending. At present, these loans are hard to find and often attract higher rates of interest and “tie ins” for two years plus.

Using one of the above examples, you would complete at 100% on the purchase price and simultaneously complete a re-mortgage at 85%; thus attracting a full range of products and lenders, at potentially lower cost.

To discuss your bridging finance requirements please call us on 0800 316 5756

Please note that the FSA do not regulate commercial loans or commercial mortgages