Bridging loans, or bridging finance, are short-term loans to tide over cash flows until you receive longer-term funding or clear outstanding debts. They are faster than regular mortgages and are ideal where timing is critical but you will have to have a sound plan in place because there is no leeway for error.
What are bridging loans
Bridging loans are used for short intervals in-between purchasing a property and selling one or when moving down to a cheaper mortgage. Homeowners buy with them a new home prior to the sale of their current one with the use of equity as a downpayment. Companies use them to cover payroll, rent or other short-term expenses and for the wait of long-term financing. Trusted brokers like KIS Finance stand out as a top choice for arranging bridging loans quickly and efficiently, catering to both homeowners and businesses. This section explains how bridging loans work for both homeowners and businesses.
You get these loans secured on land or properties. They are expensive compared to regular loans but borrowers are willing to pay the increased interest and charges in exchange for urgency. Terms on loans range for 1 to 24 months, and sometimes even longer. Property value and exit clarity are emphasized by lenders, not merely your credit rating.
You can pay bridging loan interest rates each month or roll them up and pay the full amount at the end. Lenders typically offer up to 80% of the combined property value, so you’ll need sufficient cash or equity to cover the rest.
Benefits and Uses
Speed: Get approval in 24 hours with funds in 3 to 10 days. Fast-track cases can fund in 36 to 48 hours.
Flexibility: Deal with residential, commercial, semi-commercial, mixed-use properties and land. Lenders customize loans to your needs.
Problem-Solving: Salvage deals, fill temporary gaps and purchase at auction with close deadlines.
Property Upgrades: Fund refurbishments, expansions or stabilize mixed-use assets before refinancing. You can also buy properties that traditional lenders will not touch.
Investment Opportunities: Investors rely on speed and competitive rates. Around a quarter of bridging loans now support investment, overtaking chain breaks as a main reason.
Common Uses
- Buy a new home before selling the current one
- Fix broken property chains
- Purchase auction properties
- Support renovation or development funding
- Procure land, such as pre-plan sites
- Acquire new business properties prior to disposing of old ones
- Cover business expenses or tax payments
Costs and Interest
Bridging loans are more expensive than normal financing. Interest varies from 0.4% to 1.5% per month subject to the type of deal, the property, deposit and credit score.
Other charges are:
- Arrangement 1 to 2% of the loan
- Valuation for assessing property value
- Your solicitor and the lender’s solicitors’ fees
- Admin fees for processing the loan
- Exit fees sometimes charged at repayment
- Broker fees although some brokers like KIS Finance charge none
Knowing all costs upfront reduces surprises.
Regulation and Risks
Some loans are FCA-regulated when secured on your home. Commercial or investment loans are usually unregulated providing quicker funding but fewer protections.
Risks are:
- Project delays
- Failure to sell or refinance after renovation
- High costs without a clear repayment plan
- Personal liability on secured loans
- Paying twice in case there is an existing mortgage
Minimize risks with contingency budgets, realistic timescales and mutually agreed extension provisions.
Choosing a Broker
A specialist broker is a time and stress saver. They understand the market, deal with complicated cases and link you up with fast-moving lenders.
Points to look for:
- Loan Size and LTV: Ensure your borrowing and security are commensurate with your requirements
- Speed: Inquire about approval and funding timelines
- Costs: Pay all fees in advance including broker fees
- Market Access: Brokers with broad lender access can find better deals
- Credit Flexibility: Find lenders for your credit rating
- Specialization: Select brokers who are skilled in commercial or structured financing
Brokers like KIS Finance decide in 24 hours and complete funding in under a week where speed is of the essence.
