Why Use a Bridging Loan? Benefits & Reasons
By Helen Jackson -
You might be researching financing options if you’re a property developer or a landlord. In that case, whether it’s to buy a new property or renovate your existing one, a bridging loan could be a good option to consider.
This guide explores the benefits of bridging finance and common reasons why you might consider using a bridging loan for your next property project.
Why use a bridging loan?
In short, a bridging loan is popular because it’s quick to obtain and reduces the risk of delays in the buying chain.
This type of finance is a short-term solution specifically designed to bridge the gap created between buying and selling property. Think about this, the average home in the UK takes six months to complete, which means you’ll have to wait until you’ve at least had an offer or completed on the property before you purchase another.
With bridging finance, that’s not the case. This loan gives you the financial means to move quickly on properties that crop up while you’re still in the process of selling. So you don’t have to hang around and wait for your equity to be freed from the previous purchase, and you don’t have to wait for a mortgage to be in place before you move forward on your new property venture.
The property market moves quickly, and a bridging loan helps you capitalise on that. For more reasons to use a bridging loan, scroll down.
What are the main benefits of bridging finance?
Bridging finance is short-term, which means it’s usually repaid within 12 months. This means you’re not in debt for too long, and you get to secure your next property project without delay. Mortgage applications can take between two to four weeks (on average) to complete, but with bridging finance, you can have the funds in your account in as little as 72 hours.
Remember, interest is calculated on a monthly basis, so if you end up repaying your loan over a longer period, it could become very expensive. Always check that you can realistically afford any loan before you accept lender offers.
Common reasons people use Bridging Loans
There are many reasons you can use bridging loans, here are nine of the most common.
Mortgages & Home Purchases
Waiting around for a mortgage can take up precious time when you’ve found the property you want to buy. Using a bridging loan to buy a home can make the purchase much more straightforward.
Business Startup & Finances
In need of some working capital? Bridging finance can offer you short-term funding relief. For example, you can use it to pay a large tax bill, balance cash flow or use the injection of cash to help your business grow.
B2L & Landlord Property Portfolios
Bridge-to-let is commonly used by landlords to both purchase the buy-to-let property and secure a buy-to-let mortgage. You might use your bridging loan to covert your property into a HMO or refurbish the property until it’s fit for a tenant.
Read more about bridge-to-let finance.
Commercial & Business Property
Purchase a commercial property, including office blocks, retail stores, warehouses — you name it, you can purchase it with a bridging loan. Remember, all commercial bridging loans are unregulated.
Construction & Development
It’s well documented that construction project timelines can shift, and scope creeps are inevitable, but with bridging finance, you can ensure your project continues without monetary delays.
Learn more about bridging loans for property development and construction.
Land & Agriculture
You can use your bridging loan to purchase land — it works exactly the same way as if you were buying property. The lender will want to see a robust exit strategy, and they might also want to see your property portfolio.
Buying a house at auction can mean you can snap up a bargain, but you have to complete the purchase within 28 days. Auction finance offers the opportunity to move quickly on auction properties, securing you that bargain fast.
Inheritance & Probates
If you have to pay inheritance tax on a deceased person’s estate, you might not have the funds until probate has been completed. Bridging loans can help you pay outstanding debts quickly. More questions? We have a whole guide on probate bridging loans.
Retirement & Pensions
If you’re planning to downsize your property, instead of waiting for your existing property to sell, you can move quickly as soon as you spot your perfect smaller property. Then, when you’ve sold your property, you can use the equity in the house to pay off the bridging loan.
Learn more about bridging loans for pensioners.
We hope this guide has shed some light on the circumstances bridging loans can be used in. As you can see, there are many reasons why you might want to consider bridging finance but remember, always research your options before signing on the dotted line.
Bridging finance can be a pretty expensive financing option, but with a solid exit strategy to repay the loan quickly, it’s a popular option for landlords looking to expand their property portfolio fast.
If you think a bridging loan could be the best option for you, you can compare specialist bridging lenders in our directory.