When would you need a bridging loan

A bridging loan is a short-term lending solution that can be used for multiple purposes. Bridging loans are loans secured against an asset such as property or land. There are many ways that you can use a bridging loan, and this blog will highlight reasons why you may need one.

To buy a new property
You can use a bridging loan to fund the purchase of a new property. You may wish to buy a property with the sale proceeds of another property, but you can use a bridging loan to fund this where the sale and purchase are non-simultaneous. Once the sale of the property has completed you can repay the bridging loan.

Property bought at an auction
When you have agreed to buy a property at an auction, you will typically pay a 10% deposit at the auction and the rest is due within 28 days. Since the application process for a standard mortgage can take longer to complete, use of a bridging loan can be useful to ensure you don’t miss your completion deadline. Once your mortgage application has been approved, you can use these funds to repay the bridging loan.

Funding the renovation of property
It can be difficult to get financing from a traditional lender to do refurbishment or renovation on a property, as the lender may view it as unsuitable for mortgage purposes. If the property needs refurbishment or renovation works, a bridging loan may be suitable.

Property developers or buy-to-let property investors may find bridging loans particularly useful to improve the property before renting it out to new tenants. The bridging loan can be repaid once the property has been renovated and a traditional mortgage has been secured.

Buying a commercial property
When buying commercial property, you may need to access funds quickly. Taking out commercial mortgages can be complex and lengthy process. And if the process takes too long, investors are at risk of losing their deposits if the sale falls through. A bridging loan can be helpful when buying commercial property since funds can become available to you within a shorter period.

Dealing with long-term mortgage delays
As mentioned before, traditional mortgages can take time to be approved and for the funds to be available. This may place you at risk of losing a deal on a property if you do not have financing ready in time. In this sort of situation, a bridging loan is ideal since it can cover the period between the purchase of a property and the approval of the long-term mortgage. Once the mortgage is approved, you can use the money to repay the bridging loan.

Due to the shorter term and higher interest payments, it is important to consider the risks of taking a bridging loan instead of a traditional mortgage before you apply.

Speaking with an experienced bridging broker is recommended, to guide you through the process. This will ensure that a bridging loan is the right choice for you.