Who might use a bridging loan?
Bridging loans are mainly used by clients that need quick, short-term capital to fund a property purchase. They include those who:
- need to complete quickly. This might include property developers, who often have the opportunity to secure a great deal if they can complete quickly.
- buy through a property auction. Bridging loans are popular with those buying property at an auction. Here, completion has to take place within 28 days which means traditional financing is not usually an option.
- are in a broken property chain. A bridging loan enables a seller of one property to secure their new property before the sale of their existing property goes through.
- want to buy an uninhabitable property. Traditional lenders will often not lend on a property if there is no kitchen, bathroom, central heating or running water (especially buy-to-let mortgages). A bridging lender will base its lending on the property’s value in its current condition, however. This means the buyer can get access to the property and work on it to make it habitable.
- are renovating or developing a current property. A property investor may want to renovate a property within a few months and either sell it on or refinance. A bridging loan can often be the perfect vehicle for this short-term capital requirement.
- have to get planning permission. In order to obtain planning permission and secure development funding, the developer may need immediate access to capital.
- need a lease extension. When a property has a short lease a borrower will likely be refused a traditional mortgage. A bridging loan can be used to extend the lease, which then makes the property mortgageable through conventional lenders.