There will be higher interest rates attached to bridging loans, up to as much as 1.5% per month, equating to potentially as much as 20% annually.
The lending criteria and conditions around bridging finance is stricter than a normal mortgage. Lenders will usually consider lending between £25,000 and £25,000,000 depending on the properties involved, their values as well as the timeframes and the nature of the arrangement.
Bridging finance will be used to finance the purchase of a second property before the sale of a primary one or in order to make a property purchase very quickly. Other uses are;
- Property Auctions
- Property and Land Development and Investmenta
- Business Purposes
With a closed bridging loan, there will be a date by which the borrower will be able to pay off the bridging loan.
An ‘open’ bridging loan is one in which there is no set date or timeframe in which the borrower will repay the bridging loan.
More often than not, the exit for the borrower will be the sale of the first property, which then enables them to refinance their second property to repay the bridging loan and refinance more affordably.
Typically, bridging finance borrowers are;
- Will be a homeowner and will have to own a property in order to use a bridging loan to purchase another property
- Will be working to very specific time constraints, for example as a result of an auction purchase where they will have a maximum period of 28 days in which to pay for the full property purchase
- Will be in a position where they need to unlock capital (for or from a property) quickly
- Will need the money quickly in order to purchase another property or land for development and investment purposes