Bridging Loans
What is a bridge loan?
A bridge loan is short-term finance, that is designed to keep your cash flow fluid and to bridge a gap in your finances. Often used in property purchases, by investors and developers, bridging loans can be the difference between completing on the purchase of a property and losing out on a dream home or office space.
Bridge loans explained
Bridge loans are used when finance is needed quickly, usually for the purchase of property, when the sale of a current property is delayed. Chain delays are common in residential purchases and bridging loans can give you the funds to complete the purchase.
If a property is bought at auction, they will often demand payment immediately so a bridging mortgage can be used to make the purchase and given on proof of a future property sale.
Bridging loans may also be used by property developers to complete renovations on an investment before quickly selling it on. In either scenario, the sale of a property is where the funds for repaying the loan will come from.
Bridging finance is either given as a regulated or unregulated loan. Regulated bridging finance is available when loans are secured against a residential property. Unregulated bridging finance is usually used by an experienced property investor who is looking to develop their current properties or looking to buy more.
Bridging finance then can be broken down into a further two categories: open and closed bridge loans.
An open bridge loan is when there is no definitive repayment date in place, although the lender will specify a final end date.
A closed bridge loan is where a final end date is agreed, so is therefore most often used when an existing property sale has been agreed.
Bridging mortgage options allow for short-term loans to bridge a gap in cash flow. The application to approval time is much shorter for a bridging loan than a standard mortgage or loan. Whereas a standard mortgage might be over 30-35 years or a loan over 5-10 years, a bridge loan is usually given on a 12-month term (or can be up to 24 months if it is an unregulated bridge loan to an experienced property developer).
As bridge loans are designed as short-term, temporary sources of finance, the interest rates that you are charged are higher than standard loans or mortgages. The rates will vary between lenders but can be over 1% a month. This is why a bridging loan should only ever be used for temporary cash flow delays.
Bridge loan experts
Bridge loans provide a chance to secure your desired property and can help property buyers complete their purposes. However, bridge loans are not suitable for every cash flow delay, and sometimes a different source of finance is better suited.
An expert in bridging finance can help you decide what the best financing option is to suit your personal and unique circumstances. The team of experts at FT Rich Mummy work daily with clients to advise on the best way to finance their property purchases and help them find the best deals on bridging loans.
Working together with clients, the bridging finance experts at FT Rich Mummy provide a holistic experience where the needs of our clients always come first. Booking a consultation is easy, simply…
