Bridging Loan Uses

A bridging loan is a powerful tool that property investors use to buy property at auction, refurbish properties, bolster cash flow and prevent chain breaks. They’re much more versatile than you think, read on to find out more.

What can I use a bridging loan for?

When bridging loans were first introduced in the UK they were solely intended to help prevent chains breaking during the home move process, as outlined below. Today there are a whole host of scenarios in which bridging finance is used by property owners.

Preventing chain breaks

You’ve got your heart set on the new property you’ve found. The price has been agreed and you’re desperate to move in. However, the purchase of your current home has fallen through. You’ve been able to find another buyer but it’s going to take weeks before they’re in a position to complete on the purchase of your place. In this scenario you could consider using a bridging loan to buy a house, with the finance being quickly put in place giving you the short term mortgage that is needed to allow you to complete on your dream purchase without risking it falling through. Then, once the sale of your current place has completed you can pay off the bridging finance.

Buying an auction property

If you have successfully bought a property at auction you will often have just 28 days to complete on the transaction. You will have paid 10% deposit on the day of the auction and are legally bound to pay the remainder in the pre-determined timescale (we have occasionally seen auction lots with even less than 28 days to complete). If you don’t hold the remaining 90% required in cash then you either need to find a rich relative or need to arrange some form of short term property finance.

There are two main reasons why quick bridging loans are used for auction purchases. Firstly, they are typically much quicker than traditional mortgage applications. Unlike high street banks and building societies, bridging lenders are geared up to offer loans as quickly as possible, often in a matter of days. Secondly, auction properties are often in a condition which a traditional lender would not agree to lend upon. Again, bridging lenders are far more flexible and willing to lend on property that needs light or even major renovation works.

Cash flow for busy property investors

We often work with property investors that are juggling their finances because they are managing multiple projects, or are waiting on projects to complete to fund the next project. Sometimes investors find a property that they’re determined to purchase, either privately or at auction, but need to buy some time to release equity from their other properties. The short term flexibility that a bridging loan provides means that the investor can raise the funds to press ahead with the new purchase or renovation works. Bridging finance for developers and investors is a reliable way of seizing opportunities such as below market value properties that come up at auction, where speed is of the essence.

Business bridging loan

A business owner may be asset rich but needs some short term capital to pay invoices, pay for stock, or buy equipment. A business bridging loan can help the business stay liquid and ultimately be more profitable. However, a clear strategy to repay the bridging finance is important in every scenario, not least in this business bridging loan example.

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Prevent Repossession Proceedings

If you’re in mortgage arrears and your property is going to be repossessed the property is likely to be sold under market value, as well as the cost of bridging loan and fees associated with repossession. It may be more beneficial to raise a bridging loan to pay off the mortgage lender to allow you time to sell the property at the open market value, and potentially leave you with more money in your hands. This scenario is only feasible if there is enough equity in the property both to pay back the existing lender as well as enough equity to provide the bridging lender with sufficient comfort that their loan, fees and interest will be covered.

VAT bridging loans

A more niche form of bridging lending is for a business to cover their unexpected or unprepared for VAT bill. This is often caused by a property or asset purchase. The business bridging loan can be used to bridge the HMRC VAT rebate which you know is coming. In effect the business owner will reassign the impending VAT reclamation to the bridging lender, so that the lender has security. They are also likely to hold a charge against a property.

Refurbishment of an uninhabitable property

You may see estate agents listing a property as ‘cash buyers only’. What they usually mean is that a traditional mortgage lender is not willing to lend on the property. That may be because of the construction type, or it may be because the general condition of the property deems it uninhabitable, in effect unmortgageable.

In order for a property to be deemed habitable it should meet fairly common criteria: the property has a functioning kitchen and bathroom, and is watertight i.e. the roof, windows and doors are in order and the property is secure. Mortgage lenders are also likely to want a surveyor to confirm that the heating and electrics are in place.

However, just because traditional lenders won’t mortgage these properties and agents are suggesting cash buyers only does not mean that you can’t raise finance against the building in its dilapidated condition. Br is a great loan for auction property because the bridging finance lender can provide the loan to enable you to buy the property, where a traditional lender would have rejected you The property investor then renovates the place so that it is in a habitable condition, so that it can be sold or refinanced on a traditional mortgage to redeem the bridging loan.

Bridging finance for property development

Aside from refurbishing the general condition of a property it may be beneficial to undertake major refurbishment of a property to increase its value or its profitability. If your project requires planning permission and building regulations approval this will require more funds and potentially delay completion of the project. A bridge can be an ideal source of finance to build a house and can be used to provide the necessary funds to aid the property developers cashflow.

Get in touch

Not sure what the best option is for you? Speak to one of our property finance consultants who are qualified to give you impartial advice, with no obligation.

We’re passionate about property, and would be happy to help.

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Bridging to Purchase Land

Bridging finance for developers often takes the form of a short-term loan that is used to finance a ground up development. If the land doesn’t have planning permission then the flexible criteria of a bridging finance for land can be used to fund the purchase. Once planning permission has been granted, the land usually will have increased in value and we will be able to line up development finance that would be used to replace the more expensive bridging loan with a cheaper funding option.

Even if the landowner decides not to develop the land themselves they can sell the land with planning permission to pay back the bridging loan, hopefully having made a tidy profit from obtaining planning.

Leveraging against an existing portfolio

When taking bridging finance to buy property the mortgage is not always secured on the property you are purchasing. If you have plenty of equity in your own home or your investment properties you may find it quicker, easier and cheaper to leverage this equity.

Some lenders can work with you to offer a bridging facility which acts like an overdraft, which you can draw down on as and when you need it. This gives you the confidence to know how much funding is available to you allowing you to focus on finding the right land or property to invest in.

2nd charge bridging loan

A 2nd charge bridging loan is a short-term alternative when the current lender and traditional secured loan lender is unable to raise additional funds, whether that’s due to affordability, LTV limitations or even due to the reason for the loan.

This kind of specialist lending is one of the ways you might achieve ‘100% lending’. Raising additional finance in the form of a 2nd charge bridging loan is an option if you’re attempting to finance a project but don’t have a deposit.

For example, you want to use bridging finance to secure a £600,000 property. Given that your average bridging finance lender won’t let you borrow more than 75%, you need to find £150,000 in cash to put down as a deposit.

You don’t have 150 grand lying around, but you do hold assets with a good amount of equity. Providing you have sufficient equity in your security and a realistic exit plan, usually the sale of a property or refinance you can get a second bridging loan to raise the deposit against your security.

Bridging Loan Reviews

  • Genuinely from start to finished some…

    Genuinely from start to finish some of the best service I’ve ever received. David and Harriet assisted me all the way through the process getting me the money I needed. I couldn’t recommend them both within this company anymore. I actually feel like they are my good friends now!

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  • Superb from start to finish

    Propp were superb from first contact to mortgage completion. They have a brilliant knowledge of the market and are totally focused on getting the right mortgage product but also providing assistance on an ongoing basis. Tef, Abbie and Melissa are exemplary and are on hand to give so much help - thank you

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  • From start until the finish PROPP team…

    From start until the finish PROPP team was absolutely excellent in every way especially Bob Hulbert was absolutely fabulous, excellent customer service & advisor, the most I have appreciated was that he was always easy to reach and always fast in respond staying in touch and keeping me posted at all times.  Thank you Bob surely I’ll be in touch with my next project. ☺️

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  • Propp was the best of the 3 brokers...

    Propp was the best of the 3 brokers I contacted for a bridging loan. They acted professionally, competently and transparently with courtesy and honesty.I was very pleased with the service from Abbie and Nicole and their patience. Thank you both.

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  • Excellent service during the recent volatile mortgage market.

    Excellent service during the recent volatile mortgage market. A huge thanks to Bob and Megan for their professionalism and their understanding of my current and future goals to achieve the best rate and for pursuing all parties to meet deadlines.Great to work with them!

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  • Thank you Propp!

    We are impressed and grateful for the support David gave us in steering us through each step of the important but complicated process of obtaining our loan. David was available throughout and, thanks to his efficiency and helpfulness, we were able to secure our loan in under 3 weeks. Thank you for your patience and empathy.

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  • In their commendable effort to ensure…

    In their commendable effort to ensure customer satisfaction PROPP uphold a number of valued principles not least: (1) understanding customer needs (2) strategic focus (3) Patience. The professional and admirable approach adopted by Erin and Megan is truly praiseworthy, long may their good work continue.

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  • Service provided by Propp

    I commissioned Propp to look at a mortgage package that suited my requirements. They provide sound advice, options, no hard sell and kept me updated through out the process.  Transparent , effective and extremely professional with a personal touch.  I will use them again, without a doubt.

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  • Pleasant experience …

    It can be a nervous experience when borrowing money with a bridging loan but thanks to Propp and their representatives Louie and Megan it made it quite pleasant. Many thanks to them for explaining the procedure and guiding me through the process.

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  • Shana and Megan make Propp the best

    I had the pleasure of dealing with Shana and Megan over the last two re-mortgages. They were the most helpful brokers I have ever worked with, and I have worked with a few! Shana is the most pleasant and patient person I have had the opportunity to work with. She dots the Is and crosses the Ts to ensure all information is collated before proceeding. Thank you so so much Shana and Megan.

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  • Excellent advice and overall service from David and Megan

    I dealt with David and Megan at Propp, who secured me a fast bridging loan at a decent rate of interest with minimal hassle. David listened to me carefully and fully understood my needs. Both he and Megan were very transparent throughout the whole process, resulting in funds being issued well in advance of when I expected. They would have been even quicker had it not been for my taking extra time to sign and witness the documents!

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  • A great service!

    A great service provided from Nicole and Louis - would highly recommend them!

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The solutions above refer to unregulated products only. Should you require a regulated loan please contact us. As a mortgage is secured against your property it could be repossessed if you do not keep up the mortgage repayments. Commercial mortgages and some forms of bridging, development and buy to let finance are not regulated by the financial conduct authority.