Bridging Finance

Bridging finance, as the name suggests, acts as a ‘bridge’ – a short-term financial solution designed to help individuals or businesses navigate from one financial phase to another.

It is often used when someone is buying a property at auction (also called Auction Finance) or to break a mortage chaing where someone is buying a home but their current home has not yet sold, ensuring transactions don’t fall through due to temporary fund shortages. Let’s dive into the intricate world of bridging finance.

1. What is Bridging Finance?

At its core, bridging finance

1. What is Bridging Finance?

At its core, bridging finance provides immediate cash flow. This type of loan is short-term, typically lasting from a few weeks to 12 months. Borrowers can use bridging finance to secure property purchases, complete auction property acquisitions, or renovate properties before obtaining long-term financing.

2. Types of Bridging Loans:

• Closed Bridge: A closed bridge loan has a fixed repayment date. This is suitable for borrowers who have a clear plan for repayment, usually from the sale of an existing property or another agreed funding source.

• Open Bridge: Unlike its closed counterpart, an open bridge loan doesn’t have a fixed repayment date. It offers more flexibility, but usually comes with slightly higher interest rates.

3. Why Opt for Bridging Finance?

• Speed: Traditional loans can take weeks, if not months, to secure. Bridging loans, on the other hand, can be arranged in a matter of days, ensuring that urgent financial needs are met.

• Flexibility: With varied repayment options and bespoke terms, bridging finance can be tailored to individual needs.

• Opportunity Maximisation: By availing bridging finance, investors can seize time-sensitive opportunities, like property auctions, without waiting for traditional loans.

4. Costs Involved:

Bridging loans typically have higher interest rates than conventional loans due to their short-term nature and the associated risks. Costs to consider include:

• Interest Rates: Usually charged monthly, given the short tenure of the loan.

• Arrangement Fees: Often a percentage of the loan amount, covering the costs of processing the loan.

• Exit Fees: Some lenders might charge a fee if you repay the loan before the agreed term.

• Legal and Valuation Fees: These cover the costs of any legal checks and property valuations.

5. When to Use Bridging Finance?

• Property Auctions: If you’ve successfully bid for a property at an auction, there’s usually a tight timeframe to complete the purchase. Bridging finance can provide the necessary funds promptly.

• Renovation: If a property isn’t eligible for a mortgage due to its condition, a bridging loan can fund the purchase and renovation. After refurbishment, the property’s value and mortgage eligibility typically increase.

• Chain Break Finance: If there’s a delay in the sale of your existing property but you’ve found your dream home, a bridging loan can help you secure the new property without waiting.

6. Risks Involved:

While bridging finance is beneficial, it’s not without risks:

• Higher Interest Rates: As mentioned earlier, the interest rates are typically higher than standard loans.

• Secured Loan: Most bridging loans are secured against property. Failure to repay can result in the loss of the property.

• Repayment Pressure: Given their short tenure, there’s significant pressure to secure a long-term financing solution or sell the property to repay the loan.

7. Finding the Right Lender:

It’s crucial to research and find a reputable bridging finance provider. Look for lenders who offer transparent terms and have a proven track record.

Seeking advice from a specialist bridging mortgage broker can guide you to suitable options. Make sure that the broker has a broad range of lenders such as Compton Financial Services.

Conclusion:

Bridging finance, when used strategically, can be a game-changer, especially in the dynamic world of property investments.

However, like any financial instrument, it’s essential to understand the terms and weigh the pros and cons. If used wisely, bridging loans can be the perfect solution to tide over short-term financial crunches and seize lucrative opportunities or get the dream home you have always wanted.

Your home is at risk if you fail to keep up payments on your mortgage or any other loans secured against it.

Buy to Let mortgages are not usually regulated by the Financial Conduct Authority.

Compton Financial Services Ltd is an Appointed Representative of New Leaf Distribution Ltd. who are authorised and regulated by the Financial Conduct Authority. Number 460421. Head Office 165 – 167 High Street, Rayleigh, Essex SS6 7QA. Co registration Number 5520001.