Bridging FinanceMembers of the National Association of Commercial Finance Brokers

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


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.

Planning Gain Bridge

You need not own or have any interest in the land to make the application, although if the planning applicant does not own the land, the applicant must give notice of the application to the actual landowner.

An example would be a developer who had the opportunity to purchase 6 old RAF officers quarters and some annexed land for £950,000. Knowing his way through the planning system, manages to secure (before exchange/ completion) outline planning for re-development and a further 7 properties; increasing the 90 day* value to 1.3 million.

This was financed at 100% of the purchase price and sold on for a handsome profit within 4 months.


* A 90 day value is a forced sale value rather than a market value, which is based on a 180 day value.

To discuss your bridging finance requirements please use our commercial loan enquiry form or call us on 0800 316 5756

 

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