What ARE Bridging Loans?
Bridging loans are short-term finance options, which normally range between a month to a year and a half. They are secured against the value of property – be it residential or commercial. This type of loan is normally used to secure the purchase (and/or redevelopment of houses that are not presently mortgagable due to their condition.
Bridging loans are ‘unregulated’ unless the property being used is the borrower’s home, or the home of any immediate members of their family.
What is an Unregulated Bridging Loan?
An ‘unregulated’ bridging loan is when the property being used as security is for business or investment purposes and will never be lived in by the borrower or any member of their family. A loan taken out in the name of a company/business is also unregulated.
Bridging loan lenders will lend to refinance or purchase:
- Commercial properties
- Semi-commercial properties
- Land
- Residential Houses or Flats
If the loan is to be secured against a borrower’s home then it needs to be written as a ‘regulated facility’.
What is a Regulated Bridging Loan?
A ‘regulated’ bridging loan is one where the loan is secured against an occupied property (or one which will be occupied in the future) by the borrower or any member of their family.
This loan can either be first or second charge, meaning it can either be the sole loan secured against the property (first charge), or, if there is enough equity it can be placed ‘after’ the first charge lender (second charge).
This type of bridging loan is regulated by the Financial Conduct Authority (FCA).
Auction finance
There are lenders who specialise in auction finance.
If you succeed in purchasing a property at an auction you will normally need to provide the funds within 28 days. If you use a lender who specialises in auction finance you can get the money quickly, so it’s the best route to take if you’re thinking about property auctions. It is possible to get the cash sometimes within a week. Some lenders will give you finance before the auction, so you can arrive with an ‘agreement in principle’.
Buying a property?
Property professionals frequently use bridging loans to complete transactions quickly. Loans can be provided within ten days, and often even quicker. Purchasers are often able to get discounts as they are able to act quickly and decisively. Purchasing via distressed sales and repossessions area typical use of this type of funding.
Already own property?
If you have property security it is possible to raise funds quickly while it is sold or refinanced. These funds can be used for VAT or tax payments, purchasing stock et al.
Refinancing an existing lender?
Sometimes an existing lender needs to be refinanced. Fast finance is available whilst long-term funding is arranged or the property is sold in a controlled manner, maximising its value. If there is enough equity in the property it can be possible to cover interest payments within its value.