What Is Bridging Finance?
Bridging finance is a short-term loan for people who may need funds immediately. Going down the bridging finance route is much faster than applying for a traditional mortgage, making it easier to bridge the gap from purchase to the point of exiting another loan.
Though it might seem like a great solution, lenders that offer bridging loans will require you to have a solid exit strategy in place. This means that you’ll need to show that you’ve got plans to either refinance your mortgage or sell your property.
Why Would You Use Bridging Finance?
Investors employ bridging finance to complete developments, bridge shortfalls (i.e., a delayed sale), purchase at auction, or refurbish a property.
As previously mentioned, bridging finance applications provide funding quickly. From starting the application to payout, the process takes as little as three to four weeks.
As with any form of banking, bridging finance has advantages and disadvantages.
The most significant advantage of bridging finance has to do with speed. Completing the process within days or, at the latest, weeks can help you acquire property without raising capital. That reduces the risks of your other investments, enabling you to jump in on your property. Moreover, bridging finance also allows investment in uninhabitable property. So, after purchasing a property via finance bridging, you secure a standard mortgage to renovate it.
The cons of bridging finance are high-interest rates, difficulty in qualifying, and some extra fees. For example, broker arrangement fees may be as much as 2%, with monthly interest rates between 0.40% to 1.50%. Lenders will also require equity to guarantee the loan. And you might even find yourself facing administration, processing, and completion fees in addition to the interest rates.
Bridging finance can be a versatile and valuable financial tool if appropriately managed. Before applying, speak to a mortgage advisor to find the best lender based on your needs, property experience, and credit history.