Bridging Finance

What Is Bridging Finance?

Bridging finance is a short-term loan, typically 24 months or less, that’s secured against property or land. They’re designed to help complete a transaction quickly or cover a temporary funding gap until a longer-term finance solution is ready, or liquidity from elsewhere becomes available.

They’re not meant to replace a mortgage or development finance facility, but rather, bridge the gap between one financial event and the next. That could be the sale of a property, refinance onto a residential or commercial mortgage or the completion and subsequent sale/refinance of a refurbishment. We think of it as ‘Transitional Finance’.

The crucial feature of a bridging loan is speed – in non-complex circumstances, they can often be completed in a matter of days, rather than weeks or months.

When Might You Need Bridging Finance?

While for homeowners bridging loans are often a ‘needs-must’ solution, for professional property investors they’re one of the most useful tools in their arsenal, offering opportunities to a wide range of property transactions.

Common scenarios include:

Buying at auction

Most auction buys have a mere 28 days to complete. Traditional lenders rarely work that quickly, so a purchase bridge loan can be the only realistic option. 

Use our instant bridging loan search tool to see exactly how much you can borrow and what it will cost, so you know exactly what your bidding limits are before auction.

Chain breaks

If your buyer falls through or your onward purchase needs to be exchanged before your sale completes, bridging finance can keep everything on track and stop you from missing out on your dream home.

Property refurbishment

Light and heavy refurbishment bridging can be ideal for investors looking to add value before moving onto buy to let (BTL) mortgage or selling, with bridging loans often covering up to 100% of the works.

The property is not mortgageable

Mortgage lenders typically don’t finance properties under £50,000 in value, have structural issues or require work to meet basic standards, like working kitchens and bathrooms. Bridging finance allows you to buy it, carry out the improvements and then refinance once it is in acceptable condition for long-term lending. 

Purchasing land or a property without planning

A planning bridge can give you time to secure planning permission before refinancing with development finance to build out the site, or selling the site on and banking the uplift in value.

Development Exit

For property developers with a project that has overrun (which, lets face it, happens often) but has reached Practical Completion (PC), or hasn’t yet sold, a development exit bridge can be an ideal solution. It enables you to repay the development finance lender, who will often offer a loan extension with expensive and/or unfavourable terms, and take the pressure off the sale.

Whatever your situation, if time is tight or your preferred long-term solution is not ready yet, a bridging loan can keep your property project moving. 

Types of Bridging Loans

There are various types of bridging loans, and the right option depends on what you’re trying to achieve, the level of work involved and your exit strategy (how you will repay the loan).

Here are the main types of bridging finance we arrange for clients:

Purchase or refinance bridging loans

For straightforward purchase or refinance property transactions, where no refurbishment is required or where the work is very light. Ideal for chain breaks, auction purchases and simple acquisitions.

Light refurbishment bridging loan

For cosmetic improvements, such as new kitchens, bathrooms or general redecorating. No structural work is involved. These bridges often have faster underwriting because the risk is lower.

Heavy refurbishment bridging loan

For more complex works that involve structural changes, extensions or reconfiguration, often involving planning permission. Heavy refurb bridges require a more detailed schedule of works and will involve lender monitoring.

Auction finance

A type of purchase bridging loan structured specifically for the tight auction timeframe. Whilst all lenders will claim they can perform in the timescales, only a select few actually can. Speed and lender reliability are essential, so working with PFG who know the lending market inside-out is key.

Regulated bridging

Regulated bridging loans fall under FCA regulation and have slightly different affordability and eligibility requirements. They are for borrowers who are purchasing or refinancing a property that they, or an immediate family member, will live in. 

Unregulated bridging

For investments or commercial transactions. Most property investors fall into this category because the loan is secured on a property that they don’t plan to live in.

Finding the right type of bridging loan for your circumstances is crucial, because it affects the rate, fees and arrangement speed. Our technology enables you to instantly filter out inappropriate loans and compare all available options, before we guide you through which lenders fit your strategy best.

How Bridging Finance Works

With the right broker, bridging loans follow a relatively simple process. As a borrower, the key is having your documents ready and your exit strategy clearly defined.

Here is how it works when you arrange a bridge with PFG:

1. Instant live market search

Tell us about your project, costs, timelines and objectives. We search the bridging market in seconds and compare real products, real rates and lenders that fit your scenario. This saves days of research and gives you immediate clarity.

You can also run your numbers though our loan search at any time, and make sure your deal stacks up against actual borrowing costs.

2. Application submission

We can secure you multiple DIPs within minutes, by submitting your application directly through the Brickflow platform.

We’ll run through all the available options and once you select a product, we package the case for the lender. Because we know their criteria inside-out, we bypass pesky delays or rejections and anticipate any queries before they arise.

3. Valuation and legal work

The lender organises either an on-site or desktop valuation. Your solicitor and the lender’s solicitor begin their checks. If the deal is urgent, we can advise on which lenders will work fastest and which solicitors are best for bridging work.

4. Approval and drawdown

Once legal and valuation work is complete, funds are released and you can complete your transaction. If all parties are aligned, this can sometimes take a matter of days.

6. Exit

Your exit could be a sale, refinance or other liquidity event. We make sure from day one that it’s realistic and achievable within the loan term.Your loan will either be a closed bridging loan or an open bridging loan. Closed bridging loans have a set date for exiting the loan, while open bridging loans can have any date within a set term. Open bridging loans work for scenarios where the exit is known, such as a house sale, but the exact completion date of the sale is unknown

Costs Involved In Bridging Finance

Bridging finance is fast and flexible, but it’s typically more expensive than long-term borrowing. Understanding the fees involved helps you plan your project accurately.

Typical costs include:

Interest

Most lenders charge interest daily (avoid lenders that charge monthly). Rates vary depending on the property type and condition, the loan-to-value (LTV), the planned project, the exit strategy, and, in some cases, the borrower profile.

Arrangement fee

Most lenders charge around 1-2% of the loan amount.

Valuation fee

Paid to the surveyor to assess the property’s value and condition.

Legal fees

You will have your own solicitor fees and you will usually be responsible for the lender’s legal fees too.

Exit fee

Some lenders charge a fee when the loan is repaid, although most don’t. However, most lenders will stipulate a minimum loan term before exiting. We’ll  make sure you’re aware of any additional costs from the get-go.

Broker fee / commission

This covers the expertise and time required to structure the deal, manage the lender process and guide you to completion, however it is often paid by the lender. It’s typical for the broker to charge a small commitment fee.

Find out the actual costs involved with an instant live loan search.

Risks And Considerations

Bridging finance is a specialist product designed to solve specific problems quickly. Used correctly, it can unlock profitable opportunities and keep projects moving when timing is critical, but it might not always be the right solution. 

Some key things to consider before taking out a bridging loan:

• You need a clear and realistic exit strategy (for a refinance exit, lenders love borrowers who already have a mortgage in principle)
  
• Costs can increase if the project is delayed
  
• Markets can change and valuations can come in lower than expected
  
• Heavy refurbishment requires a detailed cost plan and schedule of works

This is why expert guidance matters. Our role is to make sure the numbers stack up and your exit is achievable, and we will always tell you honestly if a bridge is not right for you.