What is bridging finance?
Bridging finance is a short-term mortgage secured against a property, allowing you to release equity quickly before refinancing with another lender. Bridging finance can be used to buy a new home before your current property sells, renovate a property before you put it up for sale or upsize or downsize without going through a lengthy mortgage process.
Bridging finance can be used in many different scenarios, for example:
- You require quick access to funds or need to complete a property transaction quickly
- You are buying a property that is un-mortgageable at the point of purchase
- Development land
- You need to release equity from a property you own quickly before you refinance with another lender
- You want to complete a refurbishment on a property before selling it or refinancing it
Types of bridging finance
- Regulated bridging – Broadly, regulated bridging finance is a loan secured against a property which the borrower currently occupies or intends to. The main difference between this and unregulated bridging finance is that the transaction is not intended for business purposes and regulated bridging finance is overseen by the FCA.
- Unregulated bridging finance is secured against every other property type, or properties for other uses. For example, buy to let properties, property developments and commercial property. It is unregulated as the property in question will never be occupied by the borrower or any member of their immediate family. Bridging finance also becomes unregulated when it is taken out under the name of a company/business, instead of a person.
Is bridging finance for you?
Bridging finance is a fast way to arrange funds, often used in situations where you’re up against the clock or temporarily short of capital.
How do you pay the interest on bridging finance?
Typically, these are the most common ways:
- Rolled Up Interest
Instead of paying a monthly interest payment, interest is added to the outstanding capital (calculated on a monthly basis), and you pay it all back when the loan is repaid (typically within 12 months)
- Serviced Interest
You will need to pay the interest cost each month as you would with a traditional mortgage
Bridging finance interest rates
Bridging finance is typically structured so that the interest rate charged is a percentage of the loan amount, calculated on a monthly basis. For example, 0.65%, 1% per month.
Exiting bridging finance
Typically, the options will be:
- Remortgaging to a standard mortgage – the new lender repays your bridging loan leaving you on a more competitive interest rate
- Property sale – the bridging loan is repaid from the sale proceeds of a property
- Sale of other assets – stocks & shares etc