What is a bridging loan? The short answer
A bridging loan is a short-term loan secured against property, used to “bridge” a gap in funding – most often between buying a new property and selling an existing one, or until a longer-term mortgage can be put in place. Bridging loans can be arranged in days or weeks rather than months, typically run for 2 to 12 months, and are usually repaid in a single lump sum at the end of the term.
Because they are fast and flexible, bridging loans are popular with buyers stuck in a property chain, people buying at auction, and investors buying property that needs work before a high street lender will offer a standard mortgage. The trade-off is cost: interest is charged monthly at a higher rate than a normal mortgage, and every lender will want to see a clear exit strategy – usually the sale of a property or refinancing onto a mortgage – before they lend. Most bridging loans come from specialist lenders rather than high street banks, so a mortgage broker is often the best way to compare what is available.
In this guide our property solicitors explain what a bridging loan is used for, who qualifies, how long it takes to arrange and what the legal work involves.
Prefer to watch? Our short video explainer is at the end of this guide. To work out the full cost of borrowing, try our bridging loan calculator.
Who uses bridging loans?
Bridging loans are commonly used for property purchases and renovations. They are usually taken out by people who are:
- Buying an uninhabitable property
- Funding a property renovation or restoration
- Buying a property quickly
- Avoiding repossession of their property
- Delayed in purchasing a property as due to waiting on the sale of their previous property
- Buying a property at auction
Bridging loans will need to be redeemed with what is referred to as the ‘exit strategy’. This could be a permanent finance option like a regular mortgage or you could choose to sell the property.
What is the reason for getting a bridging loan?
Bridging loans are useful because they can quickly secure a large amount of funds for someone in a time-sensitive situation. They are short-term, usually being between 2 or 12 months, and as a result their interest rates tend to be much lower than those of traditional loans. The short term of the loan means that you won’t have repayments hanging over you for a long time – Bridging loans do not have early repayment charges so you can pay off your loan as soon as you’re able to. Bridging finance providers avoid problems surrounding the repayment of the loan because a bridging loan must have an ‘exit strategy’ in place prior to being granted. An exit strategy can include sale of the property, refinancing to an alternative mortgage or bridge option, or an inheritance. Some lenders require additional proof or an explanation for some exit strategies. Most lenders do not have a preference for which you choose as long as you can prove that you can repay the loan by the end of its term.
How do I qualify for a bridging loan?
There are four factors which determine whether you can apply for a bridging loan:
- Loan size There is no upper limit on the amount you can borrow, but most bridging loans are at least £100,000. Whether your loan gets approved depends on whether it is feasible that you will repay the amount you borrow. Most bridging loans are capped at a set LTV (loan-to-value) and cannot exceed 75% of the property value.
- Length of the loan There is also no fixed length on the loan and most lenders will let you repay your loan anytime between 24 hours and 18 months. However, you must be able to repay the loan in full within the agreed upon time frame.
- The purpose for which you will use the loan Bridging loans can be used for any legal matters, from funding renovations to your property, to paying off urgent debts, from facilitating auction purchases, to purchasing a property while waiting for your sale to go through. As long as you are going to use the loan for a legal purpose and your circumstances fall within the lender’s criteria, you should be allowed to borrow what you require.
- Security Most lenders will ask for a security, meaning they can take ownership of the asset if you fail to repay your loan in time. If you have property which you’re willing to use as security, you will be more likely to have your loan approved.
- Property types/condition A bridging loan would be more suitable if the property you are trying to buy is in poor condition, in need of restoration or going to be demolished. This is because they are more commonly used for this type of venture and so have more flexibility than regular or even development mortgages. One reason for refinancing to a regular residential or Buy to Let mortgage at the end of bridging term is that you will have access to much lower interest rates, usually fixed for a longer term meaning it works out cheaper overall.
- Exit strategy As previously mentioned, you cannot get a bridging loan if you have no plan in place to repay the loan.
How long does it take to get a bridging loan?
A bridging loan is typically a lot faster to arrange than a standard mortgage. However, it is difficult to say how long it can take to get a bridging loan, because it depends on the above factors and if there are any delays or issues in the process. We at Starck Uberoi understand the time constraints at which you may require your bridging loan and our relationship with Starck Uberoi Mortgages means your transaction will be completed as soon as possible. Read our blog on Fast Conveyancing to see what strategies our bridging loan solicitors use to keep your conveyancing transaction moving swiftly.
How do I get a bridging loan?
Here is a step-by-step guide explaining how to go about getting a bridging loan:
- Once you instruct us, your mortgage broker will search the market for the best loan for you, while, as part of teh bridging loan conveyanicing process, our bridging loan solicitors carry out any necessary searches if you are using the loan to purchase a property.
- Your broker will then make an application to a bridging loan lender on your behalf. Whilst doing so our solicitors will raise any enquiries necessary about the loan.
- The lender will instruct a surveyor to perform a valuation on the property you mean to use as security and carry out affordability checks to determine whether you qualify.
- If your loan is approved, the funds will be released to your solicitor from the lender, and from there to you. If your loan is declined, your broker will help you either reapply with the same lender or consider some alternative options.
Buying a house arranged in self contained flats
Bridging loans are useful if you are buying a property that is arranged into converted self-contained flats and you wish to split the title so that you can mortgage each flat. A bridging loan can give you the time and provide capital to facilitate any works that need to be carried out. You can read more about freehold properties being split into separate flats in our blog The title split of your property and creating new leases.
Limited Company Buy to Let Bridging Loans
The bridging loan conveyancing process for a Limited company mortgage or bridging loan is far more complicated and requires further expertise compared to a normal conveyancing transaction. This means it is important to instruct experienced solicitors. Our experienced bridging loan solicitors can assist if you are purchasing a property with a Limited company bridging loan. Read our recent blog for more information about Limited Company Conveyancing.
Buying an auction property with a bridging loan
In an auction transaction you typically only have 28 days to complete. Bridging loans are useful because they can quickly secure you a large amount of funds in a time-sensitive situation. Bridging loans can give you the short-term flexibility and access to funds which is required in order to complete quickly during an auction transaction. For more information read our recent blog on purchasing a property at auction with our Auction Property Solicitors.
Conveyancing for bridging loans
Some bridging lenders require at least 3 partners. Starck Uberoi Solicitors are a 6 partner firm and are available to act for you and on behalf of most bridging lenders. Speak to one of our bridging loan conveyancing solicitors about your bridging loan transaction for a free no-obligation quote. Visit our are online conveyancing quote page for an instant quote.
How Starck Uberoi can help
Our ‘One Stop Shop’ approach can save you valuable time in finding a bridging loan which is right for you, all while making sure you receive bespoke legal advice from to guide you through the bridging loan conveyancing process. We always work in our client’s best interests and are determined to provide the best service for our clients, no matter their situation. If a bridging loan sounds like an effective solution for you, please see our mortgage advisors . Alternatively if you already have a bridging loan arranged and require bespoke legal advice see our online conveyancing quote calculator for a free online no-obligation quote. Or, to book an appointment please call 020 8840 6640. We have offices in Brentford, Ealing and Belgravia, and in Pinner, Richmond and Canterbury. For an appointment at any of our offices, email us at solicitor@starckuberoi.co.uk or call 0208 840 6640.
Watch: What is a Bridging Loan?
In this short video, property solicitor Diana Lotfi explains what a bridging loan is, when it is used and the main costs involved.
Instant Conveyancing Quote
At Starck Uberoi we are committed to providing you with efficient and clear legal advice. We understand that finding a reliable conveyancer can be a time consuming and difficult task; to make it easier for you, we provide a free, online conveyancing quote calculator to save you time on your search.
