What is a bridging loan?

Bridging loans are short-term loans designed to “bridge the gap” between property purchases. They’re typically used where speed is of the essence, such as when a buyer wants to jump on a good opportunity or has a development deadline on the horizon. B can come in many shapes and sizes, from vanilla residential loans to complicated last-minute commercial auctions.

Uses of bridging loans

Bridging finance is typically used for the purchasing of property, but they can also be used for several costs throughout the investment process. Bridging loans may be used to cover an existing loan which may be delaying the process. Developers can use bridging finance to keep a project from falling behind, or being forced to sell units at a loss due to quickly approaching deadlines.

Commercial property owners can also find multiple uses for bridging loans. Whether they’re planning to convert empty offices into flats, or simply expand a premises for a broadening business. Bridging loans are particularly useful for foreign investors looking to move into the UK market. Overseas buyers are likely to face more stringent rules and added paperwork than their UK counterparts when going through mainstream routes. Bridging can help reduce these potential setbacks.

How do they work

Providers of bridging finance add a charge to the property being used as security, which will be needed to secure the loan. In some cases, other forms of security can be used, such as valuable cars or rare artwork. While there is variation involved, all bridging loans typically fall into two categories: First or second charge. First charge loans are issued where there are no other borrowed funds secured against the property. Where a loan or mortgage is already listed against a property, second charge bridging loans will be issued.

Bridging loans are tailored towards the borrower’s circumstances and end goals. To assess this on a case-by-case basis, MFS follows a specific process: We receive an enquiry, send indicative terms out within four hours, get a decision in principle issued, valuations are then instructed, legal paperwork is supplied and finally, the funds are paid.

Types of bridging loans

There are a few different types of bridging loans, such as first and second charge bridging loans. First charge loans are issued where there are no other borrowed funds secured against the property. Where a loan or mortgage is already listed against a property, second charge bridging loans will be issued.

In the event of repossession, first charge loan providers will be repaid before second charge lenders are. As such, bridging lenders face a riskier market and their rates usually reflect this risk. Our bridging loans are unregulated, meaning we do not issue residential loans to borrowers for property they’re planning to live in. Residential loans can be applied for, but only where someone else will be living in the property. Bridging finance is predominately associated with property investors, as opposed to first-time buyers looking for a home to call their own.

Some lenders will provide open bridging loans, where there is no defined exit strategy in place. However, here at MFS we only lend on a closed basis, where there is a clear end-goal or a variety of suitable options for exit provided from the outset, which gives more clarity for both us and the borrower.

Advantages of bridging finance

Bridging loans can be issued in as little as 3 days, which could prove crucial in the current market. Buyers are chasing dwindling supplies and where opportunities do pop up, they’re unlikely to go unnoticed for long. The flexibility of bridging finance may also become increasingly important. In recent months, mainstream banks have tightened their lending criteria, while more legislation is on the way for the property market.

How much can I borrow?

How much an investor can borrow depends on the type of bridging loan they’re applying for. Additionally, how much they’ll be able to afford will influence what’s lent out. Across all our bridging products, the lowest amount that can be borrowed is £100,000. Our maximum is £50 million. Our buy-to-let mortgage product ranges between £150,000 and £7.5 million.

Who is eligible?

We lend to a broad range of investors and entities who are investing in English and Welsh property. This includes individuals, private companies and even complex offshore structures. We can work with buyers from most countries, so long as they’re not coming from a sanctioned state. There are also multiple interest payment options available to our borrowers so no matter how unique their setup, we can find a solution.

Length of terms

While all bridging loans are short-term in nature, that doesn’t mean there’s no variation involved at all. Our shortest terms are three months, with the longest lasting 24 months. For landlords, our buy-to-let mortgages cover either 24 or 36 months.

Impaired credit

Having a less-then-perfect credit history will not necessarily derail a bridging application. When assessing a client, we’ll look at their entire picture. Experience in the market, income levels and even their business savviness will be reviewed to get a deal over the line. All these elements will be explored with the aim of supporting a loan, not to dismiss an application.

How can I apply?

Investors can start the application process through multiple routes. They can simply call or email us to get the ball rolling. We also have an online form which can be filled out, as well a live chat that can be utilized from 9am-5pm.

Loan process

Every application we receive is progressed as quickly as possible, but they all go through the same 7-step process. The opening stages of an application have already been covered; we receive a new enquiry, a decision in principle is issued following an initial assessment and the terms of the loan will then be agreed.

Following this, a valuation will be completed and then the solicitors involved will be instructed for completion. As the process comes to a close, the loan documents will be sent, and the final elements of due diligence will be wrapped up. Finally, funds will be transferred, and the borrower will utilise them for their investment (known as loan drawdown).

How quickly can I get funds?

We can lend funds in as little as three days, but we find most of our loans take around two weeks to be issued. How quickly an applicant will receive their loan will depend on a range of factors, such as how swiftly solicitors move and how quickly all the relevant documentation can be gathered from the client.