What is a bridging loan?
A bridging loan is a short-term finance product. Otherwise known as bridging finance, this type of loan is typically used to complete urgent property purchases or business investments.
Acting as a ‘bridge’ while waiting for finance to become available, a bridging loan will often be used by an individual to secure a property investment as they await the sale of another property asset. Unlike mortgages, the process of securing fast bridging finance can be completed in a matter of days.
What can I use a bridging loan for?
Bridging loans can be used for a variety of purposes. Most commonly, they are used to buy a property while awaiting the sale of an existing property asset.
Bridge finance is also particularly useful for people who are buying a property at auction, which typically requires the buyer to supply the funds for the purchase within 28 days. This means that an auction bridging loan is more efficient than a mortgage. Property investors will also use fast bridging loans to secure capital to refurbish properties before selling or leasing them.
Bridging loans can be used outside of property purchasing as well. For example, business leaders can use bridge finance for urgent business investment opportunities.
What are the key benefits of taking a bridging loan?
There are many benefits of bridging finance. Most notably, fast bridging loans can be delivered far quicker than mortgages – in days rather than weeks or months. This speed enables property investors to seize opportunities before competitors, which is particularly important in the case of buy-to-let bridging loans.
Auction bridging is very useful as it means people who buy a property at auction can pay for the asset within the short timeframes auction houses usually impose. Meanwhile, commercial bridging loans and bridging for refurbishment deliver capital to other areas of the real estate sector so a broad range of investors and developers can pursue opportunities on the market.
By using a bridging loan, an individual has the ability to raise more capital by securing the debt against any existing property assets in their portfolio. Furthermore, they benefit from the fact that they borrow against the value of the property, not the purchase price.
How can MFS help?
MFS is a specialist in fast bridging loans. We have more than a decade’s experience of working with brokers and private clients to deliver bespoke bridging loans for buying a property.
Our team of experienced underwriters deal with each bridge loan enquiry we receive on a case-by-case basis, which means we can provide the best possible bridging loan to our clients.
MFS provides auction bridging, bridging for refurbishment, bridging for buying a property, commercial bridging loans, buy-to-let bridging and much more.
You can use our bridging loan calculator to find out how fast bridging finance could work in your particular circumstances.
How long does it take to obtain a bridging loan?
Bridging loans can be secured in just a matter of days. MFS specialises in fast bridging finance, with our experience and expertise enabling us to deliver a decision promptly. We also have immediate access to funds, which allows us to send the finances quickly to the borrower once the terms of the bridging loan have been agreed and our due diligence has been completed.
Every enquiry for a bridge loan must be assessed on its own merits, but speed is always of paramount importance.
What is the difference between commercial bridging and residential bridging?
Bridging loans can be used for the purchase and refurbishment of lots of different types of property. These are split between both commercial bridging and residential bridging.
Commercial bridging loans are used to purchase or renovate real estate that is used for business purposes. For example, commercial bridging loans can be issued for the acquisition of a shop, restaurant or warehouse, to name just a few potential uses.
Residential bridging, on the other hand, refers to bridging loans that are used to purchase houses and flats. Within this there are auction bridging loans and buy-to-let bridging loans, among many others.
What is the difference between first and second charge loans?
A first charge loan and a second charge loan refer to the order of priority for two different sources of debt. For example, if someone has a first loan for the property they live in and then secures a second loan, they will always make repayments for that first loan before making repayments for the second – the first charge takes priority.
When it comes to bridging finance, it is easier to secure more money for a first charge loan as the lender knows they are the priority when it comes to recovering funds. Meanwhile, as a result, a second charge bridging loan will carry greater risk. Therefore, the rates between a first and second charge loans usually vary.
What is KYC (Know Your Customer)?
Know Your Customer – often referred to as KYC – is the process that businesses use to identify and analyse potential customers. It will involve due diligence from the business, such as a fast bridging loan provider, to help them assess the risks of working with a particular individual or organisation, as well as the intentions of the customer.
KYC is a vital part of a bridging lender’s due diligence process as it ensures money is only lent to suitable clients.
What information is required for a bridging loan?
In order to process an application for a bridging loan, a lender will require some details of property (such as Residential, Semi-Commercial, Commercial) information. For example, a borrower will need to provide: personal details; whether it is a first or second charge loan; the value and length of the desired loan; details about the purpose of the bridging finance; and information about existing debts, assets and incomes.
Bridging finance is most often secured against a property asset – as such, information about the property being used as a security will need to be provided.
In other instances, bridging loans can occasionally be secured against other assets, such as cars, jewellery, antiques and artwork. In which case, detailed information about these assets must be made available with valuation.
What is the role of the broker and how can a professional broker help a borrower?
Brokers have an important role to play in the finance sector, particularly for individuals or organisations seeking credit. Specifically, a professional broker can both educate a borrower about the different options available to them, as well as managing potential deals for them with certain lenders.
In the bridging loans industry, brokers act on behalf of a borrower to source loan options and competitive rates. At MFS we work with brokers/Intermediaries and directly with private clients.
Do I need a solicitor?
Having a solicitor is strongly recommended for any individual or organisation looking to secure a bridging loan.
As with any property purchase or significant financial transaction, having legal support is extremely important. Using solicitors who have a good understanding of the bridging finance industry can help ensure the transaction proceeds efficiently and that the borrower is fully aware of what is involved in this process.
How can you repay a bridging loan?
When a bridging loan is secured, the borrower and the lender will agree an exit strategy, which will detail exactly how and when the loan is going to be repaid.
Usually, the bridging loan will be repaid, inclusive of the interest accrued, by an agreed date – typically following the sale of the borrower’s existing property asset. It is important, therefore, that the borrower factors in potential delays to the sale of an asset when agreeing the exit terms of the bridging loan.
It is also imperative that the borrower establishes whether the lender will charge if they wish to repay their bridge loan prior to the agreed exit date.
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