An Introduction to Property Bridging Finance

By : Nick Marr

When you start off in the property sector, it’s really important that you have a strategy for how you’re going to invest in the property that you want to buy. This type of sector needs money to start for you and it’s not something that you can walk in to with empty pockets.  This, however, doesn’t mean that you just plain can’t take part in the sector if you don’t have any money, though. There are options available to you.

A popular one is bridging finance.

Bridging finance is becoming easier to access now, due to the economy, but it’s always been relatively popular for landlords and property investors as it’s a great way to get quick turn around on money when you need it and that’s by getting a bridge loan. There are a lot of specialists that exist for the sole purpose of giving you good quality advice and information on bridging finance and they’re actually a lot more trained than someone in a bank is for this kind of finance. This gives you unrivaled access to brilliant information that is suited to your particular situation rather than a script designed to get you to sign a contract.

Bridging finance is designed to be short term, which makes it great if you want to put money down on another investment but you’re still waiting on one to sell. You’re able to borrow the money you need and pay it back as soon as the first property has cleared. With short term loans, however, tend to come high interest rates so make sure that you know what you’re getting in to, that you have a plan for your exit in case the first property doesn’t sell and that you have other back up options to pay it back if you need to. Missing payments on a bridging loans can have a lot more problems assigned to them than an ordinary unsecured loan from a bank.

While they’re great for people in the housing sector already, that doesn’t mean that they’re reserved solely for them. If you want to sell on your house but it’s currently valued at less than you paid, or not high enough that you can afford another home, then you can very easily look in to a bridging finance solution in order to do the repairs and upgrades on your home that you need to do before it goes on the market. This also means that once you’ve sold the property on, you’re able to repay back the loan from the sales of the home.

It’s important to remember that bridging finance options weren’t designed to give you access to money quickly if you can’t afford to make quick repayments. You need to be sure that you have the finance to pay everything back that you need to pay, without risking going over the agreed term of the loan. Bridging finance is secured, meaning that the responsibility falls on you to pay it and it’s very difficult to get help from the government or from debt settlers if you end up going bankrupt. This isn’t the case with bank loans.

Bridging finance options are incredibly good for people looking at the short term, who want a quick turn around on a sale, or need money while they wait for one, and it means they can continue on their business without having to wait for every sale to finalize until they have a better cash flow for their business. It also enables people to get an easier way in to the property sector without having to save up for most of their lives first.

As well as all this, though, bridging loans can be great if you come across a problem with properties. It’s really not unknown that the market changes often and usually unpredictably and a sale that you might think will do really well can very easily go for a lot less than you were expecting. A bridging loan can fix the gap between what you got and what you were actually expecting and give you a little bit more to work with to look for your next investment that will get you back up on your own feet again without worrying or having to take the loss.

Bridging Loans in Short

  • High interest rates
  • Quick turn around
  • Secured loans
  • Short term
  • Usually a maximum of 12 months

There are two different types of bridging loans that you can look at and have access to. Most places will offer both and be more than willing to advice you which is the better one for you, depending on what your situation and circumstance is.

  • Open bridging loans
  • Closed bridging loans

Open Bridging Loans

Open bridging loans are probably one of the most common as they allow for a period of flexibility. With these, you can draft up a repayment plan with a specialist but it isn’t necessarily fixed. There will be a date set for when it has to be paid off by that you have to stick to, but month by month it’s entirely in your hands how you deal with the loan. Most places will give you a maximum of 12 months to make the payments, and you can choose to pay it monthly or pay it all off in one go as long as it’s all done before the cut-off date that you’ve been given.

Closed Bridging Loans

Closed bridging loans are usually used in conjunction with a property sale. If you’ve taken out a bridging loan while you’re waiting for a property to sell or for everything to be finalized then you can take out a closed loan. A closed bridging loan allows you to set the exact date that you’ll pay it back, in one lump sum. If you know what day your property should clear and the funds should be with you, you can use this date. An advantage to this is that it reduces the interest costs that you end up paying, compared if you pay it monthly within a twelve year span.