HOW DOES A BRIDGING LOAN WORK?

A bridging loan is a short-term financial solution designed to provide swift access to funds when timing is crucial, bridging the gap between transactions. It’s commonly used in situations where immediate capital is needed, such as property purchases before a sale is finalised or property development projects requiring rapid funding. Whether seizing investment opportunities, securing property acquisitions, or navigating time-sensitive projects, bridging loans offer a flexible and efficient way to ensure financial continuity during transitional periods.

Bridging loans offer a straightforward path to swift financial solutions, especially when time is of the essence. The process involves several key steps:

1. Enquiry: You submit an enquiry over email, phone or via our website form, detailing your financial needs and the purpose of the loan. At BIG we aim to offer all indicative terms within three hours of an enquiry. Indicative loan terms outline our initial appetite towards providing a loan, including interest rate and fees. These give an indication only, as to what we might be willing to offer.
2. Offer and Terms: Following receipt of indicative terms, a client may decide they wish to proceed with the loan offered. At this stage the BIG Team will need to obtain further information from the client, so they can present a detailed loan appraisal to our credit committee for formal approval.
   Following formal approval and agreement from the credit committee, we can then issue formal loan terms.
3. Documentation: As part of the application, necessary documents like an application form, identification, proof of income and a credit report will be required. Providing additional information if requested – Commentary to credit issues, schedule of works and costings for planned refurbishments. The BiG team assists in compiling and reviewing these documents for accuracy.
4. Legals/Valuation: Once the offer is accepted, legal and valuation quotes will be provided, and will need to be paid before the deal progresses further.
5. Funds Released: Once the valuation report has come back and the legal process is complete the net balance will be paid into the borrower’s account.
6. Redemption: As your financial journey reaches completion, the loan is repaid, typically by refinance or the sale of the property.

At BiG Property Finance, our commitment to excellence sets us apart. We take a personalised approach, understanding your unique circumstances and tailoring solutions accordingly. With a streamlined process, expert guidance, and prompt fund disbursement, we ensure that your bridging loan experience is fast, flexible and transparent. The entire process, from application to completion, typically takes a matter of weeks, enabling you to make timely and informed decisions. Experience the difference with BiG Property Finance – Decision in Hours, Money in Days.

A bridging loan can be useful to raise capital for any legal purpose, however, at BIG we can only offer funds for business or investment purposes. We are unable to support the purchase/refinance of a main residence or facilitate personal debt consolidation. Some common circumstances in which a borrower may obtain a bridging loan are as follows:

• Buying to let
• Auction property purchases
• Development or refurbishment to get a property to acceptable condition to mortgage
• Houses of multiple occupancy (HMO)
• Borrow against value rather than the purchase price
• Raising debt secured against two or more properties with equity.

However, more recently, there has been a growing trend among borrowers to use bridging loans because high street and private banks are taking longer to process applications for larger residential loans.

Generally, bridging loans can range from thousands to millions of pounds, providing the financial flexibility needed to tackle various property projects, investments, or ventures. It’s essential to work closely with professionals like BiG Property Finance to determine the exact borrowing amount that aligns with your specific needs and circumstances.

Our minimum loan size is from £50,000, up to a maximum of £5 Million.

Bridging loans offer a range of benefits that make them a versatile financial solution:

Advantages:

• Speedy Access: Bridging loans provide rapid access to funds, ideal for seizing time-sensitive opportunities or addressing urgent financial needs.
• Flexible Repayment: They offer flexible repayment terms, allowing borrowers to tailor the repayment schedule to their specific circumstances.
• Property Projects: Bridging loans are particularly useful for property-related projects, such as renovations, development, or purchasing properties at auctions.
• Investment: They allow investors to act quickly, whether for property or other investment opportunities.
• No Monthly Repayments: In some cases, monthly repayments may not be required, giving borrowers more financial flexibility.

Beneficial Scenarios:

• Auctions: For auction purchases, where completion is normally required within 28 days, bridging loans can ensure you don’t miss out on an opportunity.
• Refinancing: You can use a bridging loan to raise funds from an existing residential or commercial property.
• Renovations: If you’re renovating a property to enhance its value, bridging loans can cover the costs.
• Chain Break: If you’re part of a property chain, a bridging loan can prevent delays caused by broken chains.

Considerations: While bridging loans offer many advantages, they may not be suitable for everyone. Key considerations to be aware of when taking out a bridging loan is that there are risks associated with this short-term lending. Interest rates on bridging loans are higher than that of a term mortgage. The restricted term also means you have less time to amend your exit strategy if your original repayment method doesn’t come to fruition, this can put you at risk of default. A bridging loan offer is still subject to further due diligence and often a valuation. Whilst you may have a loan initially agreed, this is subject to further checks on yourself as the borrower/your company as well as the property and the completion of legal work. If something is uncovered later that impacts a lender’s perspective on the risk of your loan, terms may need to be revised or withdrawn. This can then leave you in an urgent transaction that is without funding, at short notice, so always be clear of your options.

Tips for mitigating risks

•   Ensure you have a clear exit strategy with detailed timeline and alternative options.

•   Work with experienced and trustworthy lenders who have transparent criteria and clear processes.

•   Conduct thorough property and market research to ensure you are obtaining the right form of finance for you, with the right criteria.

Bridging loans come in different forms, each tailored to specific financial needs and circumstances. Here are the primary types and their key distinctions:

Closed Bridging Loans: These loans are suitable when you have a fixed repayment source in place, such as a property sale. They come with a clear end date and are often used when purchasing a new property before selling an existing one.

Open Bridging Loans: Open bridging loans are chosen when you don’t have a fixed repayment source, making the exit strategy more flexible. They’re common when timing is uncertain, such as waiting for a property to sell.

Development Bridging Loans: Specifically designed for property development projects, these loans provide the necessary funds for construction, renovation, or conversion.

Regulated Bridging Loans: For those planning to live in the purchased property, regulated bridging loans adhere to consumer regulations, providing additional protection.

Regulated V Unregulated Bridging Loans: There are two key categories of bridging loan, either regulated or non-regulated. At BIG Property Finance we currently offer unregulated bridging loans only.

An unregulated bridging loan is lending against a property that is not occupied by the borrower or their immediate family and is used for business or investment purposes.

A regulated bridging loan relates to securing a loan against a property that is currently, or will be, occupied by the owner or an immediate family member. Regulation means that consumers are protected from incorrect advice or miss-selling from lenders or brokers.

Choosing the right type of bridging loan is essential to align with your specific goals and circumstances. Working closely with experts like BiG Property Finance ensures you make an informed decision that serves your best interests.

The cost of a bridging loan varies depending on several factors, and understanding these components is crucial for making informed financial decisions:

Interest Rates: Interest rates for bridging loans tend to be higher than traditional mortgages due to the short-term nature of the loan. Rates can vary based on market conditions, loan duration, and your creditworthiness.

Loan-to-Value (LTV) Ratio: The loan-to-value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. So a loan at 70% LTV means you are borrowing the equivalent of 70% of the property’s value. The higher the LTV the higher risk the loan, from the lender’s perspective, and so this can warrant a higher interest rate or more stringent criteria. Maximum LTV rates will vary amongst bridging loan providers and will depend on the type of security, its condition and the planned future use of the property. 

Exit Strategy: The viability of your exit strategy, and how you plan to repay the loan, plays a significant role. A well-defined exit strategy can positively impact the terms offered.

Repayment Options: Bridging loans offer flexibility in repayment options. You can choose to make monthly interest payments, ensuring the interest is covered while the principal is repaid at the end of the term. Alternatively, you can opt for retained interest, where both the net loan and interest are repaid at the end of the loan term.

Transparency Matters: BiG Property Finance takes pride in transparency. We ensure you fully comprehend the costs, interest rates, and repayment options associated with your bridging loan. This clarity empowers you to make informed decisions that align with your financial goals. We want to provide all our clients with a positive experience and quality service. Therefore, we like to work with investors and experienced individuals who fully understand the risks and responsibilities of obtaining a bridging loan. We are always happy to provide further information.

Navigating the costs of a bridging loan requires careful consideration, and having experts by your side ensures you explore options that suit your financial strategy. At BiG Property Finance, we’re dedicated to guiding you through this process, ensuring you secure the best solution for your needs.

Securing the ideal bridging loan involves considering several key factors to ensure you’re getting the best deal tailored to your needs; ensure you have a comprehensive understanding of all costs associated with your bridging loan, have a contingency fund available to cover unexpected costs or delays, consider seeking advice from a financial advisor and compare multiple lenders and bridging loan products to find the most suitable option.

Tips for Success:

•   Research Extensively: Compare multiple lenders and bridging loan products to find the most suitable option. A broker or financial advisor may be able to help you compare multiple loans and firms very quickly.
•   Plan Your Exit: Develop a clear, realistic, and executable exit strategy before taking out the loan. Consider multiple exit options so you have a plan B (e.g. sale of another asset, refinance, or property sale)
• Understand the Terms: Ensure a comprehensive understanding of all costs associated with the loan. Explore what additional costs are incurred if you were to fall into default on your loan and any other potential scenarios. Get a breakdown of fees from the lender and use a bridging loan calculator to estimate total repayments if required.

Don’t hesitate to reach out to one of our expert advisors at BiG Property Finance. Whether you’re a seasoned investor or new to the property finance landscape, our team is here to provide you with all the information, guidance, and support you need to make informed decisions. 

Contact us today to begin your bridging loan journey with confidence and clarity.