Bridging Loans & Bridging Finance

A bridging loan is a form of short-term finance typically secured against property. It is designed to provide funding for a limited period, often where a conventional mortgage is unsuitable or cannot be arranged within the required timeframe.
Bridging finance can be used for a range of purposes, including purchasing a property before another is sold, buying at auction, funding refurbishment works or refinancing an existing loan.
Unlike a conventional mortgage, the lender will usually place significant importance on the value of the property being used as security and the proposed exit strategy. The exit might be the sale of the property, refinancing onto a longer-term mortgage or another clearly defined source of repayment.

A bridging loan is secured against a property or other suitable real estate and is generally arranged for a relatively short period. The amount available and terms offered will depend on factors including the property, loan-to-value, borrower circumstances and the proposed exit strategy.

Bridging finance can often be arranged more quickly than a conventional mortgage, making it useful where a transaction needs to complete within a limited timeframe. The actual timescale will depend on the complexity of the case, valuation, legal work and the lender involved.

For example, a borrower purchasing a new property before selling their existing home may use a bridging loan to complete the purchase. Once the existing property is sold, the proceeds can be used to repay some or all of the bridging finance.

A key part of any bridging application is the exit strategy — how the loan will ultimately be repaid. Common exit strategies include the sale of a property or refinancing onto a longer-term mortgage.

Income and affordability can still be relevant, particularly where interest is being serviced or the proposed exit involves refinancing. However, bridging lenders will also consider the value and suitability of the security and whether the proposed exit strategy is realistic.

Bridging loans can be structured in different ways depending on the property, the purpose of the borrowing and how the loan will ultimately be repaid.

Closed bridging loans have a clearly defined repayment date or exit, for example where contracts have already been exchanged on the sale of another property.

Open bridging loans offer greater flexibility where the exact repayment date is not yet known. The lender will still expect a credible exit strategy and the loan will usually have a maximum term.

Bridging finance can also be arranged on a first-charge or second-charge basis. A first-charge bridging loan is generally the primary borrowing secured against the property, while a second-charge loan sits behind an existing first-charge lender.

The appropriate structure will depend on the circumstances of the transaction, existing borrowing and the proposed exit strategy.

Bridging finance can be used for a wide range of property transactions where short-term funding or greater flexibility is required.

Common uses include:

• Purchasing a property before an existing property has been sold;
• Buying residential or commercial property at auction;
• Funding property refurbishment or renovation;
• Purchasing a property that may not initially qualify for a conventional mortgage;
• Refinancing existing borrowing;
• Raising capital against an existing property; and
• Providing short-term funding while longer-term finance is arranged.

Bridging loans can be used by homeowners, property investors, landlords and developers. The suitability of the finance will depend on the property, the purpose of the loan and how the borrowing will be repaid.

The amount you can borrow with a bridging loan will depend on the value of the property being used as security, the loan-to-value (LTV), the purpose of the borrowing and the proposed exit strategy.

Bridging lenders will also consider the type and condition of the property, any existing borrowing secured against it and the overall circumstances of the transaction.

For larger bridging loans, lenders may take a more bespoke approach to underwriting. Magni Finance specialises in arranging large and complex bridging finance, including transactions where the borrowing requirement runs into several million pounds.

Where additional properties or assets are available, it may also be possible to use more than one property as security, depending on the lender and circumstances.

The cost of a bridging loan will depend on the loan amount, loan-to-value, property, borrower profile and the overall complexity of the transaction.

Interest on bridging finance is usually charged monthly. Depending on the lender and circumstances, interest may be serviced each month, retained from the loan at the outset or rolled up and repaid when the bridging loan is redeemed.

In addition to interest, there may be other costs to consider, including lender arrangement fees, valuation fees and legal fees. Exit fees may also apply to some products.

Because pricing can vary considerably between lenders and transactions, the overall cost should be considered alongside the loan structure, speed required and flexibility of the facility rather than the interest rate alone.

Arranging bridging finance starts with understanding the transaction, the property being used as security and how the loan will ultimately be repaid.
Magni Finance will assess your requirements before approaching suitable lenders. This can include specialist bridging lenders, banks and private banks, depending on the size and complexity of the transaction.
We can then compare the available structures and terms, coordinate with the lender throughout the application and work alongside valuers, solicitors and other parties involved in the transaction.
Where timing is important, we will make this clear to the lender from the outset and help progress the application towards completion as efficiently as possible.