What are the 7 myths surrounding bridging loans?

  Elena Zinonos - Digital Marketing Manager, Enra Specialist Finance

The world of bridging loans is shrouded in myths and misconceptions making it challenging to distinguish fact from fiction.

West One believes it’s time to unravel some of the myths around bridging loans and break through some of the most common myths West One comes across.

When it comes to navigating the complex world of bridging loans, a trusted financial partner will be able to guide the borrower. The main focus is to empower customers with knowledge and information to make informed financial decisions.

Myth no.1 – You can’t refinance a bridging loan

Due to their nature, bridging loans will typically be for a maximum period of 18 months. At the end of this period, some lenders may not offer a new bridge if the project has not yet been completed, and the exit strategy not fulfilled.

If your client's project has not yet concluded and the lender is not willing to re-bridge, it is possible to acquire a new bridge from another lender. This can act as a viable option until the exit strategy can be achieved.

Myth no.2 – Bridging loans are only used for property purchases

Bridging loans can have wider uses beyond purchasing property, including covering unexpected expenses, funding/expanding a new business venture, or buying land.

Bridging loans are a flexible financing option with multiple uses, including funding property refurbishment and consolidating debts. This versatile loan structure allows for diverse financial needs to be met, making it an attractive option for borrowers.

Whether there is a need to help cover business expenses, pay off existing debts, or fund other projects apart from property, bridging loans offer the flexibility to use the raised funds for various financial needs.

Whilst bridging can be used for a wide range of financial needs, they provide a temporary line of funding until a more cost-effective permanent solution can be found. Whatever the use, borrowers will need a security against the loan.

The versatility, speed and flexibility of bridging extends far beyond purchasing property, bridging can be used to raise capital for almost any legal purpose.

Myth no.3 – Bridging isn’t suitable for rigid time constraints

Bridging loans are a flexible source of finance and can be arranged quickly, and in some instances in a matter of days.

Auction purchases utilising bridging loans are a popular choice due to the arrangement speed. But fast bridging is not limited to auctions which typically have a 28-day completion timeframe for the purchase. As reported by the publication ‘Bridging Trends’, Q2 2023 saw an average bridging time of 54 days, the West One average is 27 days.

It is important to remember, bridging can be used for numerous other scenarios, including buying property via traditional channels, light refurbishments, or bridging the gap while waiting for a long-term mortgage to be approved or even when a residential chain breaks.

Myth no.4 – Existing residential property purpose only

Common misconceptions are that bridging loans are limited to residential properties that already exist or have plans in place to build. Bridging loans can be used for commercial and semi-commercial purchases, purchasing land with or without planning permission.

They can provide the necessary funds quickly and efficiently and can be the vehicle to purchase a residential property or invest in commercial property.

Myth no.5 - Only UK residents can apply for a bridging loan

Bridging loans are not restricted to UK applicants or residents. In fact, not a lot of lenders are comfortable with lending funds to ex-pats or foreign nationals. West One, are one of the lenders in the industry who feel comfortable lending funds for these types of applicants.

West One takes a view on clients all over the globe and will always try to be proactive in understanding the borrower’s needs and source of funds to understand the borrowers’ objectives, how the funds will be used and for what purpose. Applicants must have a clear and strong exit strategy in place.

Ex-pats and foreign nationals from across the world may be eligible to access bridging loans with West One when looking at funding options.

Myth no.6 – Bridging loans are only for individuals with perfect credit scores

One common myth surrounding bridging loans is that they are only available to individuals with impeccable credit scores. However, this is not necessarily the case. While a good credit score can certainly improve the chances of securing a bridging loan, it is not the sole determining factor.

West One takes a holistic approach when assessing applications. We consider various factors when examining a case. This means that individuals with less-than-perfect credit scores may still be eligible for a bridging loan if they can demonstrate the ability to repay the loan and have sufficient collateral and security.

Myth no.7 – Bridging loans are only for experienced property investors

Another common misconception is the belief that bridging loans are exclusively for experienced property investors or those in the property market. Bridging loans are available to a wide range of borrowers, including first-time property buyers and entrepreneurs looking to fund their business ventures.

Whether a seasoned property investor or a novice buyer, bridging loans can provide the necessary funds to bridge the gap and then secure a long-term mortgage or exit the financial agreement.

Furthermore, bridging loans can be an attractive option for individuals who are self-employed or have irregular income streams. Traditional lenders may be hesitant to provide loans to borrowers with non-traditional income sources, but specialist lenders like West One are more flexible in their lending criteria.

In conclusion, bridging loans are a versatile financial option that is designed to serve a wide range of purposes beyond the common misconceptions associated with them. Whether the borrower is in need of a quick financial solution to refinance a loan, purchase property, or business expansion, bridging loans offer flexibility, and speed.

By dispelling these misconceptions, borrowers can make informed decisions and explore bridging loans as a viable option for their specific needs.