Bridging Finance
Short-term property finance for time-sensitive opportunities
Sometimes a standard mortgage simply isn't the right solution.
You may need to complete a property purchase quickly, buy an unmortgageable property, secure an auction purchase, fund refurbishment or bridge the gap while waiting for another property to sell.
This is where bridging finance can potentially help.
At Cambs Ely Mortgages, we help clients explore short-term finance solutions for residential, commercial and investment properties. We work with a wide range of lenders and specialist finance providers to help identify a funding structure appropriate for the circumstances.
What Is Bridging Finance?
Bridging finance is a short-term secured loan designed to provide funding for a limited period.
Unlike a traditional mortgage, which may run for 20, 25 or 30 years, a bridging facility is generally intended to be repaid once a specific event occurs.
This could be:
Selling a property
Refinancing onto a standard mortgage
Completing a refurbishment
Obtaining planning permission
Selling a development
Releasing funds from another property
Completing a property transaction where timing is critical
The key to a bridging loan is therefore not just how much you can borrow, but how and when the borrowing will be repaid.
When Might Bridging Finance Be Useful?
There are many situations where bridging finance may provide a solution.
Buying Before Selling
You may have found your next property but your existing property has not yet sold.
A bridge can potentially provide the funds needed to complete the purchase before the existing property is sold.
Once the sale completes, the proceeds can be used to repay the bridging facility.
Auction Purchases
Property purchased at auction often comes with a strict completion deadline.
A conventional mortgage may not be able to be arranged quickly enough, particularly where the property requires work.
Bridging finance can potentially provide the short-term funding needed to complete within the required timeframe.
Unmortgageable Properties
Some properties may not qualify for a conventional mortgage because of their condition.
For example, a property may have:
No functioning kitchen or bathroom
Significant structural issues
Major refurbishment requirements
Planning or property issues
No suitable residential mortgage security
A specialist bridge may provide funding to acquire the property and complete the necessary works before refinancing onto a conventional mortgage.
Refurbishment
Investors may use bridging finance to purchase a property requiring substantial renovation.
Once the works are completed, the property could potentially be sold or refinanced.
Development Projects
Bridging finance can also form part of a wider property development strategy, depending on the project.
For example, a developer may need short-term funding to acquire a site before moving onto longer-term development finance.
How Does a Bridging Loan Work?
A typical bridging transaction involves four key elements:
The security – the property or properties being used as security.
The amount borrowed – the facility required to complete the transaction.
The term – how long the finance is expected to be outstanding.
The exit strategy – how the loan will ultimately be repaid.
The lender will assess these factors before deciding whether the proposal is acceptable.
The exit strategy is particularly important.
What Is an Exit Strategy?
The exit strategy explains how you intend to repay the bridging loan.
This might be through:
Sale: Selling the property and using the proceeds to repay the loan.
Refinance: Moving onto a standard residential mortgage, buy-to-let mortgage or commercial mortgage once the property is suitable for longer-term lending.
Development finance: Refinancing the bridge onto development finance once planning or other requirements have been satisfied.
Sale of another property: Using proceeds from another property transaction to repay the facility.
The lender needs to be satisfied that the proposed exit is realistic.
For example, if your exit is based on refinancing, the lender may consider whether the property is likely to qualify for the proposed long-term mortgage.
What Is LTV?
Loan-to-value (LTV) is an important consideration when arranging bridging finance.
It compares the amount being borrowed with the value of the property being used as security.
For example, if a property is valued at £500,000 and you borrow £300,000, the LTV is 60%.
The maximum LTV available will depend on the lender, property, borrower, exit strategy and overall circumstances.
Some bridging facilities may also involve more than one property being used as security.
Can I Use More Than One Property as Security?
Potentially, yes.
A bridging facility can sometimes be secured against multiple properties.
This can be useful where the value of one property alone isn't sufficient to support the required borrowing.
For example, an investor may use an existing property alongside the property being purchased.
The lender will assess the properties collectively and consider the overall security position.
What About Commercial Bridging Finance?
Bridging isn't limited to residential property.
Specialist lenders can potentially provide bridging finance for:
Commercial properties
Offices
Retail units
Industrial units
Warehouses
Mixed-use properties
Development sites
Investment properties
Commercial bridging can be particularly useful where speed, property condition or an unusual transaction makes conventional commercial finance difficult.
The lender's assessment will depend heavily on the property and proposed exit.
How Quickly Can Bridging Finance Complete?
One of the main attractions of bridging finance is speed.
A bridge can potentially complete significantly faster than a conventional mortgage, although the actual timescale depends on the complexity of the case.
Factors that can affect the process include:
Property valuation
Legal work
Title issues
Planning
Source of deposit
Number of properties involved
Lender requirements
Complexity of the exit strategy
Speed should never mean skipping due diligence. A fast completion is only useful if the funding structure works and the exit is realistic.
How Much Does Bridging Finance Cost?
Bridging finance is generally more expensive than a conventional mortgage because it is specialist short-term funding.
The overall cost can include:
Interest
Arrangement fees
Valuation fees
Legal fees
Broker fees
Exit fees, where applicable
Other lender or professional costs
Some lenders may allow interest to be rolled up or retained from the facility rather than requiring monthly payments, depending on the structure.
This means it is important to look at the total cost of the loan, rather than comparing interest rates alone.
Why Use a Specialist Bridging Finance Broker?
Bridging lenders can have very different approaches to property type, LTV, borrower profile, credit history, development experience and exit strategies.
A case that one lender rejects may be suitable for another.
At Cambs Ely Mortgages, we can assess the complete transaction and help you understand the potential funding structure before you commit.
We can help with:
Residential bridging
Commercial bridging
Auction purchases
Refurbishment projects
Property investment
Chain breaks
Development projects
Unmortgageable properties
Short-term funding requirements
We also consider what happens after the bridge, because the exit strategy is fundamental to the transaction.
Thinking About Bridging Finance?
If you're considering a property purchase or investment where timing is critical, obtaining advice early can help you establish whether bridging finance is appropriate.
At Cambs Ely Mortgages, we provide specialist commercial and property finance advice to clients across Ely, Cambridge, Cambridgeshire and throughout England.
Whether you're an investor, landlord, developer, business owner or homeowner, we can help you explore the available options.
Building Blocks for a Brighter Future.
Get in touch to discuss your circumstances and the property you're looking to finance.
Important Information
Bridging finance is specialist secured lending and is not generally regulated by the Financial Conduct Authority in the same way as a residential mortgage. The regulatory treatment depends on the circumstances and purpose of the borrowing.
Bridging finance can be expensive and is intended as short-term funding. It is important to have a realistic and achievable exit strategy before taking out the facility.
Your property may be repossessed if you do not keep up repayments on a mortgage or other loan secured against it.
Commercial finance is subject to lender criteria, valuation, underwriting and availability. There is no guarantee that finance will be available.
Information correct at the time of writing. Rates, fees, lender criteria and availability can change.