In today’s Greenfield Mortgages blog post, we’ll explore the intricacies of bridge financing. We’ll cover everything from the different forms of bridge financing available to commercial bridging loan opportunities, and how to structure a bridging loan around your requirements. This is an area in which we have many years of experience and a deep-seated understanding of the markets.
But first, let’s answer the all-important question: What is bridging?
What is bridge financing?
Bridging financing is a short-term loan that’s generally paid off after around 12 months. We find this type of finance is most popular amongst individuals looking to secure short term mortgage finance. It can speed up the process of buying a new house whilst still living in your old one, and it enables you to carry a mortgage for two properties at the same time.
So, to answer the question: what is bridging? The clue is in the name, really, bridging finance bridges the gap between selling your old house and buying a new one.
Bridging finance can also be used in the commercial sphere, but more on that later. For now, let’s look at the differences between bridging finance and other methods of financing.
Comparing bridging finance to other methods of developmental finance
When trying to compare bridging finance to other loans, the main difference is speed and simplicity. With traditional lenders, it can take months to complete a deal and for equity to be cleared. With bridge financing, our decision can be finalised in a matter of hours and funding is normally released in a few weeks or even a matter of days.
As established bridging finance lenders, we also tend to require less information than mainstream lenders because we take a more simplified view of the lending process. The reason for this is that our focus is on the property used to secure the finance bridging loan, as well as the validity of the exit strategy to pay it off.
With the core differences covered, let’s compare bridging loans and the definitions that separate them.
How to compare bridging loans
Bridging loans come in two forms, closed bridge and open bridge, but what do these terms mean?
Closed bridge finance loans
In a closed bridge financing loan, there’s a set date for repaying the full loan amount. This is popular if you have a construction completion date or a date for the sale of your property confirmed, as both of these can act as an exit plan for your loan agreement.
Open bridge finance loans
With an open bridge bridging loan, there’s a clear repayment point at the end of the fixed bridging loan period. However, there’s also the option of paying off the bridge financing arrangement sooner. This is helpful should your exit plan take place before the scheduled repayment date.
Why might you need bridging finance?
There are lots of situations in which a bridging finance loan can be helpful, but the most popular is when individuals are looking to purchase a new property whilst waiting to sell their current home.
However, commercial bridging loans are also extremely popular, and can apply to the following scenarios:
- To raise funds whilst waiting for planning permission
Developers often get stung by planning permission delays, especially when converting a property from commercial to residential use. In this scenario, we can provide bridging finance for property developments with the funds released whilst waiting for planning permission to be granted. This is not normally an option with traditional lenders.
- To help with construction and sales delays
Those with development loans might find themselves approaching a repayment date, but construction or sales delays mean that they need more time and money to get the project over the line. Instead of extending their current loans with high interest rates and additional fees, we can provide bridging finance for property development at lower rates with a simpler, quicker application process.
- To move onto the next project
Here at Greenfield Mortgages we specialise in commercial bridging loans. These are especially useful when a project is close to practical completion, but a developer has accumulated significant debt throughout the build. Instead of adding to an ever-increasing line of finance, dealing with higher fees and longer wait times, bridging finance for property development can consolidate borrowing into one place until the sale of your units is completed. This allows you to proceed with your next project without waiting for cash to be released from the one you’re on the verge of completing.
With the basics covered, let’s explore the pros and cons of bridging loans.
Pros of bridging finance
Speed – The first advantage of bridging finance loans is speed. It’s quick and simple to obtain financing, and the process is much simpler than traditional methods of borrowing. Our team will normally make a decision on your bridging application within one hour of your initial enquiry.
Affordability – Even though bridging loan headline interest rates may be higher than traditional forms of lending, the time it takes to pay the full amount back is less. This means that the interest is controlled, assisting with short-term cash flow, and you don’t have to worry about rising costs or monthly rate increases.
Flexibility – Since payments can generally be deferred until you sell your property, we offer a certain degree of flexibility when structuring a bridge finance loan. There may be the option to make payments interest only until the sale is achieved – this is something we can discuss when structuring your finance.
Freedom – The overall goal of a bridge finance agreement, and why it’s so popular, is that it gives you the freedom to put a deposit down on a new home without waiting for the sale of your old one. This also applies to commercial bridging loans for developers, where new properties can be purchased whilst waiting for development projects to be finalised.
Cons of bridging finance
Interest rates – The cost of a bridging loan is often presented as a disadvantage because the headline interest rates tend to be higher than other forms of lending. However, it is important to appreciate the short-term nature of bridging finance against the lack of traditional lending options available at the time.
Fees – There are various fees to consider when taking out a bridging loan, from legal fees to arrangement fees, valuation fees, and more. We are transparent and upfront about our fee structure from the outset so there are no misunderstandings or issues further down the line.
Collapse of a sale – Even if you have an agreement for the sale of your property, there may be unexpected delays or the sale may fall through. We are flexible with our bridging loan arrangements and appreciate that some issues are out of the control of clients. Consequently, it is not uncommon for bridging loan arrangements to be extended to provide additional breathing space.
How do I get a bridging loan?
The process of obtaining bridging finance is the same as any other loan. After considering your requirements and security available, we will look to provide finance at a fixed interest rate and period agreed upon by both parties.
When it comes to the length of the arrangement, there tends to be a maximum term, usually between 12 and 18 months. The full amount can normally be repaid at any point within this timeframe, but the conclusion of the arrangement may depend on the client’s ability to secure refinancing.
Where to get a bridging loan or bridging finance
When you’re looking into bridge financing, it is important to focus on lenders with experience and an impeccable reputation. At Greenfield Mortgages, we have been providing bridging loans for quick mortgages since 2009. Over the years we have built up a highly experienced and knowledgeable team resulting in many satisfied customers.
Whether a property is uninhabitable, in need of repair, or if you’re looking to sell your old home and move into your new one, we specialise in quick equity release and quick mortgages. In fact, we’ve been known to complete the release of funds in as little as 7 days, for both personal and commercial bridging loan arrangements.
Enquiring about our bridging loan services
If you need bridging finance for property development, renovations, refurbishments, moving home, or commercial projects, we’ve got you covered at Greenfield Mortgages.
Our team of dedicated relationship managers will guide you through the bridging loan application process. We offer a professional and flexible approach to lending, providing finance structured around your particular requirements. As a consequence, we are often able to give a decision within an hour of your initial enquiry, releasing funds in as little as seven days.
Details of the services that we provide are available on our website, giving examples of how bridging finance can be used in many different situations. If you have any questions or would like to discuss your specific requirements in more detail, please visit our contact page. Leave your contact details and one of our team will call you back at a convenient time.