What is a Bridging Loan or Finance?
A Bridging Loan is a form of short-term lending to fund a property investment or development project which cannot be funded traditionally through a long-term mortgage.
Why should a property investor or developer use a bridging loan?
- To buy a property that is not mortgageable.
- To move quickly on a transaction effectively turning an investor into a cash buyer.
- To buy properties in an auction that requires you to complete in 28 days.
- To buy a flat with a short lease that you cannot buy with a traditional mortgage.
- To buy below market value property and re-finance pulling all/most funds out.
- To convert a house or a commercial building into HMO.
- To convert commercial buildings into individual flats.
- To develop new build houses from ground up.
- To cover a gap in a broken property purchase chain.
Benefits of a Bridging Loan
- Offers from lenders within as little as 48 hours.
- Term available between 2 months and 2 years.
- No early repayment charges or fees.
- Very quick and Streamlined underwriting process.
- Approval straight from decision makers.
- At times, interest payments rolled up at the end to have greater loan to investors.
- Enter quickly into a transaction, fix the problem and sell or re-finance.
- Lending on asset/project based not borrower’s profile.
Investor Case Study
Investor bought a de-relict 2-bed terrace house in London which cannot be purchased through a traditional mortgage. Upon purchase, the investor intended to repurpose the property into a 3-bed family home giving it a complete make-over.
The client acquired the property for £220,000 in an auction and intended to spend £50,000 on the refurbishment and other costs to convert the property into 3-bed and sell it back on the market. The expected market value of the property after the refurbishment was between £325,000 and £350,000.
We helped the client acquired the property through 75% LTV on the purchase price and 100% development costs to complete the project. The project was completed within 6 months and sold for £340,000 with a gross profit of £53,000.