What is a bridging loan?
A bridging loan (or bridging finance as it is also known) is generally used to borrow money quickly and for a short period of time. It helps to ‘bridge the gap’ if you need to buy a new home before your old one sells or when you buy a property at auction. They are useful and offer great flexibility if you need finance quickly but should only be used for short-term lending.
The loan is secured against a property just like a mortgage. This could be the property you intend to buy – for example at auction, or it could be secured against a property that you already own, such as your residential home. It is advisable you plan your ‘exit strategy’ before taking out a bridging loan however, as it is not designed to be used as a long-term funding solution.
Interest on bridging loans is calculated monthly, rather than annually as people tend to use them for a short period. Typical rates vary and can range from 0.49% to over 1% per month but depend on the property and loan to value. They also come with set-up fees, usually around 2% of the total loan you want to borrow. It is advisable that you only take out a bridging loan when you are confident you won’t need it for a long period of time.
In monetary terms, bridging loans could be anything from £25,000 to millions. But providers will limit the amount they will lend based on maximum loan-to-value ratio (LTV) of 70-75% of the property value.
This is a more complex form of bridging finance, typically used when carrying out extensive development on a property or building from the ground up. As development progresses the value of the property increases which in turn unlocks the next tranche of investment. All the while keeping the LTV at a level comfortable with the lender. The key figure they use here is the Gross Development Value (GDV) which is what the approximate value will be once completed. At Aspire Financial Services we have access to bridging development finance through a range of specialist lenders and would be happy to discuss your project requirements.
Is a Bridging loan right for me?
The structure of a bridging loan can vary depending on your specific needs and circumstances. At Aspire Financial Services we understand bridging finance and can match the right lender to your needs. Don’t try to guess what to do if you are considering a bridging loan, call us for a free 30-minute consultation.