A bridging loan is a type of short term finance initially designed to help with property purchases but actually with a wide variety of potential uses. The name stems from the fact that the loan is designed to ‘bridge’ a gap between two other sources of finance. In many cases this involves the selling and buying of property. You may not be able to sell your current home but if the property you want becomes available in the meantime then a bridging loan can help you to afford it until you sell your current home and the equity is released.
Bridging loans for property developers
Larger bridging loans can be important for property developers who have completed work on one development and have identified another opportunity. Whether the developer is an individual or an organisation, the bridging loan can be put in place to begin work on a new development whilst the properties on the completed development are sold. Once this happens the bridging loan can be paid off using the equity from the completed properties. The advantage for developers is that there is no unproductive and non-profitable downtime between the two situations.
Other uses for bridging loans
Because bridging loans are designed for situations where there is a need to move quickly, getting access to bridging finance can typically be relatively quick. This makes bridging finance potentially suitable for a variety of purposes, depending on your circumstances. A bridging loan could be used to boost cash flow, or to make a time-sensitive investment, for example.
Bridging loans for auction property
When purchasing a property at auction, it is likely that you will have to complete before you will have had chance to put a mortgage in place. Again, bridging finance can be helpful here, as it can allow you to complete your successful bid, whilst continuing to arrange a mortgage in the usual manner.
Bridging loans for renovation or property refurbishment
There are several examples of situations where the property you own or are buying may be considered to be ineligible for a mortgage by many lenders. This circumstance can easily occur if the property in question is having significant renovation work, is being refurbished or is being developed extensively. In those scenarios then a bridging loan may again be a good solution, allowing you to purchase the property initially and complete the work, at which point you should be able to mortgage the property as per usual.
Your property may be repossessed if you do not keep up repayments on your mortgage.