February 12th, 2024.
What Are Bridge Loans and How Do They Work?
A bridging loan is a short-term loan designed to ‘bridge the gap’ between two transactions while you’re waiting for funds to become available from the sale of something else, typically the purchase of a new property and the sale of an existing one.
To get a bridging loan, the first step is to typically speak to a bridging loan broker who has access to a network of lenders specialising in bridging finance. They can help borrowers access a wide range of loan options, including those that may not be available through traditional channels.
Once you apply for a bridging loan through a lender, they will assess your situation and, if approved, the lender will offer you a loan amount, terms, and conditions. Once accepted, the loans will be disbursed and you can use the funds to purchase the new property or for any other desired purpose.
You will be required to repay the bridging loan in full at the end of the loan term, typically within 6 to 18 months, and repayment is usually made through the sale of the property or by refinancing with a long-term mortgage.
At Pure Property Finance, our bridging loan brokers are here to advise you on the best deal for your circumstances and work with you throughout the process to ensure that your loan completes with as little fuss as possible. Call us on 02920766565 and speak to one of our bridging loan experts today.
Are Bridging Loans Worth It?
Here are 5 main reasons why bridging loans are worth it:
1. They Offer Quick Funding
The biggest benefit of all is that bridging loans offer quick access to funds, and can be approved and funded often within days.
This is much quicker than the traditional mortgage process, making them a perfect solution for property buyers in time-sensitive situations who need to move quickly or in urgent financial needs.
This speedy funding can help borrowers avoid delays in property transactions caused by traditional financing hurdles, and instead of waiting weeks or months for mortgage approval, borrowers can secure bridging finance quickly to proceed with their plans without interruption.
Our specialist team here at Pure Property Finance has been arranging bridging loans for our clients throughout the UK for a number of years, and at times funds can be released within 48 hours from the day of enquiry.
2. They Are Flexible and Can Be Fully Tailored
Another great benefit is that they are super flexible and can be fully tailored to the borrower’s specific needs, with options for open or closed loans and first or second charges, making them a versatile financing option for various scenarios.
Open Bridging Loan Definition
An open bridging loan is basically a type of loan that has no fixed repayment date and therefore can be repaid whenever your funds become available.
However, with an open bridging loan, lenders tend to expect you to clear the debt within one year, although some lenders can offer longer repayment terms.
Closed Bridging Loan Definition
In contrast, a closed bridging loan has a fixed repayment date, and this will often be based on when you know you’ll have your funds available (for example when the sale of your house has gone through).
Closed bridging loans are typically cheaper than open bridging loans as there’s less flexibility available around repayment.
First and Second Charge Bridging Loans
When you take out a bridging loan, the lender will place a ‘charge’ on your property, meaning that if you can’t repay the loan, the lender will take its repayment from the sale of the property.
If you don’t have any other loans secured on your property, i.e. you own it outright and haven’t used a mortgage to buy it, then this will be a ‘first charge’ bridging loan.
Second charge bridging loans are typically used when there is already one or more loans secured on the property, i.e. an existing mortgage. Instead of refinancing the entire mortgage, borrowers can take out a second charge bridging loan to access additional funds.
3. They Can Be Used for a Variety of Different Purposes
There are various situations that can be solved with bridging finance, and can be used for almost any legal purpose.
Here are some common uses for bridging loans:
- Property auctions – at auctions, properties can be purchased without the buyer having a mortgage agreement already in place, so bridging loans are great if your mortgage is unlikely to come through within 28 days.
- Property refurbishment – If your property needs refurbishment, then many high street lenders may be unwilling to help out. A bridging loan can cover these costs and be repaid upon sale. Refurbishment finance can also help.
- In between property transactions – Bridging loans are great if you’re purchasing a new home but haven’t managed to sell your current property yet to pay for it.
Learn more about what a bridging loan can be used for here.
4. Potential for Higher Returns
As we know by now, bridging loans provide rapid access to funds, allowing investors to capitalise on time-sensitive opportunities quickly, which can be essential in competitive markets where delays could result in missing out on lucrative deals (e.g. in auctions).
Bridging loans also offer flexibility when it comes to investment strategies, allowing investors to pursue various property ventures, whether that be renovations, refurbishments, developments, or buy-to-sell projects.
5. No Early Repayment Charges
Last but certainly not least, because bridging loans are so flexible, most don’t carry any early repayment charges, meaning if you, as a borrower, want to pay the loan off early, you can do so without incurring any additional costs.
As discussed previously, a closed bridging loan will have a fixed repayment date, but there is nothing stopping you repaying the loan before the repayment date.
It’s actually a good idea to see the repayment date as the last day on which payment can be made before it is viewed as being overdue.
At Pure Property Finance, our specialist bridging loan brokers can help you get the fast finance you need. With years of experience securing fast short-term bridging loans, we have developed a strong network of the UK’s quickest and most flexible lenders meaning the best possible result for you.
And for more tips, check out our finance & investment blog.
Written by Kate, for Pure Property Finance.