Bridging loans are often an essential tool for the property investor when requiring to make a quick decision to buy a property and can be the difference in deciding if the property can be secured. Interest rates on bridging loans will generally be higher than for conventional investment mortgages but as a short term fix, they can be ideal.

Bridging loans for the property investor

Bridging loans have many uses and some of these are shown below.

  • Bridging for investment – When you need to raise money from property or land you currently own, a bridging loan can help with;
    • Buying before you sell – If you are purchasing an investment property but your financing arrangements are held up and you stand to lose the property, bridging the gap can resolve the problem.
    • Buying investment property at auction – Property auctions are good places to pick up investment property often at below market value. Rules at auction generally require the purchaser to leave a 10% deposit on the day of auction and pat the remainder within thirty days. This period is too short for most mortgage lenders to agree loans so quickly arranged bridging loans are used to bridge the gap in funding time.
    • Property chains – in England it is common for a chain of property transactions to happen at the same time. If one transaction fails then all fail and everything must start again. Where this happens, it may be possible to utilise a bridging loan to stop the chain breaking and let al transactions go through.
  • Bridging for commercial purposes – If your business or property portfolio is in desperate need of short term finance, a commercial bridging loan can help you raise capital for creating business growth, solving short term financial problems or fund a new business opportunity.
  • Bridging loans for development purposes – This is a more difficult area but nevertheless an important one. Often an opportunity will arise to purchase investment property very cheaply but its condition may rule it out for raising mortgage finance. Provided you have properly ascertained that after re-development, the property value will make it suitable for mortgage finance then a short term bridging loan could allow the project to go ahead.
  • Time to obtain a decision – Bridging loan can be arranged and completed within a matter of days if required with a decision in principle on a loan being made within a hours.
  • How Bridging loans are assessed – The bridging loan lender will calculate the current values of the securing properties less the value of any existing loans or mortgages secured on them and allow a loan as a percentage of that figure. Maximum loans of £500,000 is typical for most bridging lenders but some will go higher.

Costs of bridging – the lender will set a fixed interest rate for the term of the loan, usually a percentage of the overall loan value paid per month. Investors will want to repay these loans as quickly as possible due to their high cost and it is vital before accepting a secured loan that you have checked that mortgage finance will be made available to take out the loan in the proper time.