Bridging Finance & Short Term Property Loans
Bridging finance is quick and easy lending to help developers and investors secure a property while arranging a more long term mortgage. Bridging is often under-used short-term property funding that is available up to 100% of a property’s value, or even more if other properties are offered as security as part of the deal.
Many investors turn to bridging to buy properties at auction or to fund below-market-value deals when speed to complete is needed as bridging lenders can often arrange a loan in around a week.
Bridging comes in two types:
Open Bridging: Open bridging has no defined exit strategy and is less popular with lenders who like to have a date when they can expect to have their money back.
Closed Bridging: Closed bridging defines a fixed term for the borrowing and often calls for an agreement in place to buy, let or remortgage the property when the bridging term ends.
Interest rates and costs are not published by bridging lenders as borrowing is tailored for each specific deal. Borrowers should expect to pay 3% or more above the lender’s base rate plus booking and arrangement fees. Costs of borrowing are often rolled up in to the finance package so developers or investors can protect their cash flow. Bridging finance generally comes with a choice in how the interest is repaid:
Rolled-up interest: an interest only loan with the interest paid on redemption of the loan. This structure is useful for releasing cash flow during the loan period but can cost more over the term.
Monthly payments: a standard loan with interest paid monthly
Interest deducted: the lender deducts the interest for a specified period from the bridging finance advance
One specific use of bridging finance is to buy open land for speculation or development. Land bridging is a tool for buying a plot, applying for planning permission to gain an uplift in value before refinancing or selling for development.