Bridging Finance

Navigating the Property Market with Bridging Finance and Bridging Loans

For those needing short-term funding, Mandalay Financial offers access to a comprehensive range of bridging loans. With connections to all major lenders and more niche providers, we can assist you in securing the right bridging finance for your unique circumstances.

Bridging loans provide specialist short-term finance to “bridge” a temporary financial gap. Property buyers and investors find them particularly useful, as they offer a swift injection of funds when traditional mortgage financing is too slow or unavailable. This speed and flexibility make them an invaluable tool for homeowners, property investors, and developers alike.

Unlocking Opportunities with Bridging Finance

You can use a bridging loan in a variety of situations. Whether you’re facing a break in a property chain or looking to seize a time-sensitive investment opportunity, bridging finance provides the capital to move forward with confidence.

Common applications for bridging loans include:

• Resolving a Property Chain Break: Many clients use a bridging loan to salvage a property purchase when a chain breaks. If your buyer unexpectedly pulls out, a bridging loan provides the funds to proceed with your own purchase, preventing you from losing your desired property. This gives you breathing space to find a new buyer without a looming deadline.

• Purchasing at Auction: Property auctions require a speedy completion, often within 28 days. You can arrange bridging loans much faster than traditional mortgages, making you a more competitive bidder and ensuring you have the funds ready to secure your purchase.

• Renovating an Unmortgageable Property: Lenders often reject standard mortgage applications for uninhabitable properties, perhaps those lacking a kitchen or bathroom. You can use a bridging loan to purchase such a property and fund the renovations to make it mortgageable, at which point you can refinance onto a longer-term solution.

• Funding Development Projects: Property developers use bridging finance to purchase land (with or without planning permission) and to fund the initial project stages. A specific product, development exit finance, can also pay off an existing development loan, providing more time to sell the completed units at the best price.

• Making Home Improvements: If you want to make significant improvements to your current home, a bridging loan can provide the upfront capital you need.

• Covering Tax Liabilities: You can use bridging finance to quickly raise funds to settle an unexpected tax bill.

• Navigating a Divorce: In a divorce, you can use a bridging loan to buy out an ex-partner’s share of a property before reaching a final settlement.

Understanding the Different Types of Bridging Loans

Bridging loans are not a one-size-fits-all solution. The industry categorises them in several ways, and understanding these distinctions is key to finding the right product for your needs.

Regulated vs. Unregulated Bridging Loans

The key difference between these two loan types lies in how you use the property and the level of consumer protection.

• Regulated Bridging Loans: Lenders secure these loans against a property that the borrower or a close family member lives in or intends to live in. The Financial Conduct Authority (FCA) regulates these loans, which affords borrowers a higher level of protection.

• Unregulated Bridging Loans: Borrowers use these for business or investment purposes, such as buy-to-let properties or commercial premises. The borrower does not live in the property. While the FCA does not directly regulate them, reputable lenders still adhere to high standards of conduct.

First Charge vs. Second Charge Bridging Loans

The “charge” refers to the legal claim a lender has over a property if you do not repay the loan.

• First Charge Bridging Loan: This is the primary loan a lender secures against a property. If you own your property outright with no mortgage, your bridging loan would be a first charge. Lenders offer more favourable terms for first charge loans as they carry less risk.

• Second Charge Bridging Loan: You take out this loan on a property that already has a mortgage (the first charge). The second charge lender ranks behind the first charge lender for repayment in the event of a default. Due to this increased risk, second charge bridging loans often have higher interest rates.

The Costs Associated with Bridging Loans

You should know that bridging loans typically have higher interest rates than traditional mortgages. This reflects their short-term nature and the speed of arrangement. Lenders usually quote interest rates monthly.

In addition to the interest, you should also consider other fees:

• Arrangement Fees: The lender charges a fee for setting up the loan, typically a percentage of the loan amount.

• Valuation Fees: You will pay for a professional valuation of the property used as security.

• Legal Fees: You need to cover your own legal costs as well as the lender’s.

• Broker Fees: You may need to pay your broker a fee for their services.

• Exit Fees: Some lenders charge a fee when you repay the loan.

How you pay the interest can also vary. You may be able to “roll up” the interest, meaning you make no monthly payments and the lender adds the interest to the final loan balance. Alternatively, you can “service” the interest by making monthly payments.

The Bridging Loan Application Process

While each lender has its own criteria, the general application process follows these steps:

1. Initial Enquiry: First, speak to a specialist broker, like Mandalay Financial, to discuss your requirements.

2. Agreement in Principle: Once we identify a suitable lender, they will issue an Agreement in Principle (AIP)—a conditional offer based on your initial information.

3. Valuation and Legal Work: The lender will instruct a formal property valuation. At the same time, solicitors for both parties will begin legal due diligence.

4. Formal Loan Offer: After a satisfactory valuation and legal checks, the lender issues a formal loan offer.

5. Completion and Drawdown: Once you accept the offer, the lender releases the funds. You can often complete the entire process in a matter of weeks, and sometimes even days.

A crucial element of any bridging loan application is a clear and viable exit strategy—your plan for repaying the loan. Common exit strategies include selling the property, refinancing onto a traditional mortgage, or selling other assets.

Contact Us for Expert Bridging Finance Advice

If you require more information about bridging finance and wish to discuss the benefits of bridging loans for your situation, please contact us. Our experienced advisors at Mandalay Financial can guide you through the process and help you secure the funding you need.

Contact us today: Telephone us on 020 7486 9976 or Email the team at info@mandalayfinancial.co.uk

Your home may be repossessed if you do not keep up repayments on your mortgage.

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