Bridging loans can be a useful financial tool, especially when time is of the essence – for example, when purchasing a new property before your current one sells. But what happens if your original repayment plan hits a delay?
Let’s say you’ve taken out bridging finance to fund renovations before selling your home, but the building work has overrun by two months. You’re not ready to sell, and the loan term is about to expire. What are your options?
The good news is that bridging loans can often be extended, but it’s not guaranteed, and there can be additional costs or other consequences. In this article, we’ll explore how extensions work, what your options are and how to reduce the risk of needing one in the first place.
Can a bridging loan be extended?
Most bridging loans are short-term agreements, typically lasting between six to 12 months. But sometimes, things don’t go according to plan. Property sales fall through, renovation timelines slip or exit strategies hit unexpected obstacles.
In these situations, borrowers may request an extension on their loan. Whether or not the extension is granted depends on several factors:
- Your lender’s policies
- Your current repayment progress and financial position
- The strength of your new exit strategy (how you plan to repay)
- Market conditions and changes in property value.
It’s important to understand that extensions are not automatically given. Even if your reason is genuine, the lender may see increased risk and may only agree under stricter terms, such as:
- Higher interest rates
- Extension fees
- Updated property valuations
- Tighter repayment deadlines.
This is why it’s essential, before you take out a bridging loan, to realistically assess your timeline and exit strategy. Choosing a slightly longer term upfront can often be more cost-effective than requesting an extension later.
How to extend a bridging loan
If you’re approaching the end of your loan term and need more time, you have two main routes:
Option 1: Negotiate with your current lender
This is usually the most straightforward path, especially if you’ve kept up with your interest payments and maintained clear communication.
Here’s what you’ll typically need to do:
- Contact your lender as early as possible. Don’t wait until the last minute. Lenders appreciate transparency and time to assess your case.
- Explain the reason for the delay. Be clear and honest, whether it’s a delayed sale, renovation issues or legal holdups.
- Update your exit strategy. Lenders will want reassurance that you can still repay. Show evidence, such as a new sale agreement, marketing updates or refinance applications.
- Be prepared for extra costs. The lender may apply a higher interest rate for the extended period, include a one-off fee or require new legal or valuation checks.
- Get the extension in writing. Make sure any agreed changes are reflected in a revised contract.
Bear in mind, if you’re using a closed bridging loan (which has a fixed repayment date), extending it may be more difficult than an open one.
Option 2: Refinance
If your current lender won’t approve an extension, or their terms are too costly, you may choose to refinance with a new lender. This means taking out a new bridging loan to pay off the old one.
Refinancing can also give you a chance to adjust your loan size, interest rate or repayment structure. However, it’s not always fast or cheap.
Here’s what refinancing usually involves:
- Full application process: Expect to go through credit checks, affordability assessments and property revaluations.
- Exit strategy update: Just like before, you’ll need to prove how you intend to repay, whether through a future sale, long-term mortgage or another route.
- Legal and arrangement fees: These can add up, so it’s important to factor in the total cost, not just the monthly interest rate.
- Possible delays: Some bridging lenders offer fast-track refinancing – but it’s still a more complex route than extending with your current lender.
While it’s possible to extend a bridging loan, the process can be complicated and may end up costing you more than your initial expectations.
Planning ahead is the best way to avoid needing an extension at all. Before applying for bridging finance, ask yourself:
- How realistic is your timeline?
- What could cause delays?
- Do you have a backup exit strategy?
- Would a longer-term loan reduce pressure?
If you’re stuck and unsure what your next step should be, don’t wait. Speak to your broker or lender early. At Ascot Mortgages, we can guide you through both extension and refinance options, helping you find the best outcome based on your goals.
