Ready to enter the property market… but frustrated by timing problems?
It’s a question every property investor will face. You’ve found the perfect property to invest in, but your current home hasn’t sold yet. Or you’ve spotted an auction steal but need the cash in a few days.
The problem:
Traditional mortgages can take months to process. By the time you get approval, the property you wanted has sold. That’s where bridging loans step in…
Without a bridging loan, you miss out on opportunity after opportunity while your competitors grab the best deals. The UK bridging loan market is booming, with £10.9 billion in loans forecast by 2024 and huge demand for fast finance.
In this guide, you will learn:
- What Is A Bridging Loan?
- How Bridging Loans Work For First-Time Borrowers
- Different Types of Bridging Finance
- The Real Costs You Need To Know
- How To Speed Up Your Application
What Is A Bridging Loan?
A bridging loan is a short-term loan that helps you “bridge the gap” between buying a new property and selling an existing one.
Essentially it’s a financial safety net that allows you to move fast in the property market. Bridging loans are repaid within 12 months.
You secure the bridging loan against the property you’re selling or the one you’re buying. This enables you to unlock the equity and complete purchases without delay.
Applications range from breaking chains to buying at auction. 23% of bridging loans are now to prevent chain breaks, up from 19% previously.
Speed and flexibility are the main advantages of bridging finance. Traditional mortgages can take months, but bridging loans are arranged in days or weeks.
How Bridging Loans Work For First-Time Borrowers
If you’re new to bridging finance, it’s worth taking the time to understand the process before you apply…
In reality, the application process is simpler than most borrowers expect. But there are some important differences from regular mortgages.
Bridging loans focus on:
- Property value – rather than your income
- Exit strategy – how you plan to repay the loan
- Loan-to-value – usually around 58%
Unlike with a traditional mortgage, income isn’t the main thing that lenders care about. Instead, they’ll scrutinise the property used as security and the details of your exit strategy.
For property investors considering a bridging loan for the first time, options like those available through https://bridgeloandirect.co.uk/halifax-bridging-loans demonstrate how speed is often the deciding factor.
With a bridging loan, you don’t need to demonstrate affordability for monthly repayments. Instead, you need to be able to clearly demonstrate a realistic exit strategy, typically by selling the property or refinancing.
Different Types of Bridging Finance
Bridging loans come in different forms depending on your situation.
Closed vs Open Bridging Loans
Closed bridging loans have a fixed repayment date as the point at which funds become available is known. Closed loans typically have lower rates.
Open bridging loans have no fixed repayment date. These are more expensive due to the uncertainty.
Regulated vs Unregulated
Regulated bridging loans are for properties where the borrower will live. These have additional protections but take longer to process.
Unregulated bridging loans are for buy-to-let or commercial properties. They are faster with fewer protections.
First Charge vs Second Charge
A first charge bridging loan is the primary mortgage on a property. A second charge sits behind an existing mortgage. First charge loans have better rates.
The Real Costs You Need To Know
Bridging loans are an expensive form of finance. But for many property investors, the costs are justified by the speed and opportunities.
Expect to pay:
- Interest rates: Usually around 0.88% per month (10-12% annually)
- Arrangement fees: 1-2% of loan amount
- Valuation costs: £300-£1,500
- Legal fees: £1,000-£3,000
Interest is calculated daily and so the faster you can repay the loan, the less you will pay. This is why having a clear exit strategy is important.
So, if you took out a £100,000 bridging loan over 3 months, you could expect to pay around £3,000 in interest plus fees and disbursements. That’s more expensive than a mortgage, but far cheaper than missing out on a great property deal.
How To Speed Up Your Application
Want to get your bridging loan approved as quickly as possible?
There’s good news here: completion times have been falling in 2024. The average completion time fell by 23% last year to just 58 days.
But you can do even better than that…
Get Your Documents Ready
The more prepared you are, the faster you can complete. You’ll need to have the following to hand:
- Proof of identity – passport and driving licence
- Bank statements – last 3 months
- Proof of exit strategy – sale agreement or mortgage offer
- Property details – including planning permissions etc.
Choose The Right Lender
Bridging loan providers are not created equal. Some specialist bridging lenders can complete in 5-10 days. Others take weeks.
Pick An Experienced Solicitor
Bridging loans require a solicitor with experience of the process. A mortgage solicitor will not understand what’s required.
Ask the question upfront: “How many bridging loans have you completed this year?” You want someone who completes many every month.
Communicate Clearly
Talk to your broker and lender regularly. Check in to see if they need anything from you. Respond to requests asap. Delays in your end directly delay the application.
If you are organised and work with experienced professionals, it’s possible to complete a bridging loan in less than 14 days.
Common Mistakes First-Time Borrowers Make
Avoid learning the hard way. The best way to learn is to learn from others mistakes…
Not Having A Clear Exit Strategy
Lenders need to see exactly how you plan to repay the bridging loan. “I’ll sort it out later” is not acceptable. You need a clear proof of funds or mortgage offer.
Underestimating Total Costs
Ignore the interest rate and look at all the fees. Factor in the legal costs and delays. It usually takes 3-6 months to complete. Budget for the full cost.
Using An Inexperienced Team
Your broker, solicitor and surveyor all need to be bridging specialists. Using regular mortgage professionals causes delays.
Is A Bridging Loan Right For You?
Bridging loans are not for everyone. They are extremely powerful but need to be used carefully.
Consider a bridging loan if:
- You need to move fast on a property deal
- You have a clear exit strategy with proof of funds
- The potential profit justifies the costs
Avoid bridging loans if:
- You don’t have a solid exit strategy
- You can’t afford the monthly repayments
- You are relying on uncertain future income
Things To Remember
Bridging loans can be a game changer for property investors who need to move fast and value flexibility. They are expensive, but the right opportunity can unlock deals which would otherwise be impossible.
The bridging market is stronger than ever, with more lenders, faster completion times and more competitive rates. That means better deals for borrowers.
To quickly recap the essentials:
- Bridging loans provide fast access to property finance
- They are secured against property and repaid within 12 months
- Exit strategy is more important than income
- Costs usually run 10-15% including interest and fees
If you are serious about using bridging finance, work with experienced professionals that specialise in this market. The right team makes all the difference between smooth transactions and expensive delays.
Remember: bridging loans are extremely powerful but require careful planning and clear exit strategies to be used successfully.