What is a bridging loan?

A bridging loan is a short-term loan, which is secured on a property, that is typically used to help a person or an organisation to go ahead with making a property purchase without waiting for a sale to go through. It is called a bridging loan because it is designed to ‘bridge the gap’ in finances. This an option is typically used to buy a property even if you have not yet sold your existing home, for example, if you wanted to downsize without waiting for the sale of their current home.

This type of loan often has a fixed end date, usually to co-inside with when the borrower knows that funds will be able to repay the loan. They can last between 1 day to 12 months for a regulated bridging loan or up to 2 years for an unregulated one.

How does a bridging loan work for home and property owners?

Bridging loans can help you:

  1. Downsize to a more affordable place
    If you are looking to move to a smaller or less expensive home, you could use a bridging loan to secure the smaller property whilst you sell the existing home.
  2. Secure a new home
    When there is a delay between the sale and completion dates, a bridging loan can help you to secure a purchase without having to wait for the sale of your existing property to go through.
  3. Repair a broken property chain
    A bridging loan can enable you to purchase a new home even if a buyer in the chain drops out.
  4. Buy a property at auction
    If you buy a property at an auction, you usually need to pay a 10% deposit immediately. The rest is usually due within 28 days. They’re useful for completing the purchase whilst you arrange a long-term solution, either a through a quick sale or a mortgage.
  5. Build your dream home/grand design
    A bridging loan could help you achieve that dream of building your ideal home.
  6. Easy a temporary cash-flow issue
    You could use a bridging loan to release equity in your family home. For example, for use in a probate case where inheritance tax needs to be paid on a property, or a divorce settlement.

How do they work for property developers and landlords?

With bridging you can:

  1. Buy property to develop at auction
    Completion is required to happen within 28 days of the hammer going down, so bridging finance can secure the property until it’s either been resold, refurbished or re-financed. This can be for both residential properties and commercial properties.
  2. Buy a property that’s considered uninhabitable
    If a property is deemed uninhabitable, it can be hard (if not impossible) to find a lender willing to provide a mortgage. A bridging loan can provide the money needed to fund the building work required to make a property fit to live in, enabling it to qualify for a mainstream mortgage.
  3. Renovate a property before a sale
    Property investors find a refurbishment-bridging loan useful if they need to fund expensive repairs and/or property development before putting it back on the market with the aim of selling it for profit.
  4. Ease a temporary cash flow issue
    A bridging loan can be used to capitalise on market conditions and discounted investment opportunities.