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.

Our free deal optimiser service saves on average £10,475.

By offering a free price comparison tool we place the power back in your hands. Our deal optimiser service forces lenders to compete for your business, saving you time and money. †

Compare & Optimise

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.

Contact us

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

  • An excellent experience

    Propp were absolutely excellent from start to finish. Matt was very helpful in finding the right lender for what we were looking for and Nicole could not have done more for us. She was helpful in so many ways; speeding up the transfer of documents, always staying in touch and constantly chasing solicitors and the lender to enable us to be able to complete on the arranged date. I don't think we would have managed it without her and am very grateful for all her efforts.

    Read More
  • Competitively priced, slick and quick!!

    All staff were great, but Nicole was my main contact at PROPP. She was great, my case was complicated and she had to consistently chase people on my behalf to speed up the process. Which she did with great enthusiasm. Always polite, positive, and assertive to get the job done!  After having a mortgage application refused by another lender, PROPP swooped in to save the day so I could purchase a freehold property with two flats, that I was desperate to get over the line. They uncomplicated everything about the process and stayed hot on the heels of the lender, solicitors, etc., so that the minute probate was granted, the sale went through slick and very quick! The rate they gave me was extremely competitive. I know this because called up so many companies for comparison.  I will be using PROPP again, as I hopefully continue to build my property portfolio. 😊

    Read More
  • Property Deals Done Propp-erly!

    I have used Propp for a lot of transactions and I have always been taken care of. Harriet, David and the entire team keep on top of things from start to the finish. I am grateful for their service and highly recommend.

    Read More
  • David and Nicole were great...

    David and Nicole were great and worked very hard to complete, well done! Very pleased with the outcome. Gave me great confidence right from the start.

    Read More
  • My Enquiry was dealt with by Abigail

    My enquiry was dealt with by Abigail Webster who is one of the best I have ever had. She was professional, and patient and made sure to give all options and timely updates. Taking all the pressure off from you and having a pleasant personality. I would highly recommend Abi to anyone who is looking for a mortgage or remortgage.

    Read More
  • We worked with James and Megan

    We worked with James and Megan on our re-mortgage and they were both very professional, knowledgeable and helpful. Wouldn't hesitate to recommend them and Propp.

    Read More
  • Remortgage to new lender

    Megan and Shana were able to secure a remortgage for us on a much better mortgage rate than we had with our existing lender. They worked hard, gave regular updates and kept in touch until we were finally issued with a new offer. I would highly recommend their services!

    Read More
  • Refinanced property

    I recently refinanced one of my properties through PROPP and I would definitely recommend PROPP they were very efficient thank you Jordan, Nicole and Peter.

    Read More
  • Abbie and Megan were great!

    Abbie and Megan were great. They helped me with the application process, and with the stress and solved problems that arose. Buying a leasehold is a nightmare and Megan in particular kept me sane 🌟🌟🌟🌟🌟

    Read More
  • Our go-to Broker with a lot of extra support they offer.

    This is our second transaction with PROPP and all went great. Thanks to Connor for finding us the deal and huge thanks to Megan for overseeing our second transaction and for making sure all is in place for fast completion. Looking forward to growing our portfolio with your support. Definitely recommend!

    Read More
  • David and Nicole were fantastic!

    David and Nicole were fantastic and helped us secure our dream home. Very professional and informative throughout the process.

    Read More
  • Mortgage transfer

    I contacted this company about a buy to let transfer, within one hour James had found me a much better deal saving me £40 a month on my mortgage payments the transfer was done within days no fuss no hassle.

    Read More
Write a review

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.