Bridging loans are a type of short-term financing that are used to “bridge” a financial gap, often in the context of property transactions.
These loans are designed to provide quick access to funds to cover a timing mismatch, such as when you need to complete the purchase of a new property before you’ve sold your existing home.
Bridging loans are commonly used in a variety of situations, including:
- Buying a new home before selling your current property
- Funding the purchase of an investment property or development project
- Covering a short-term cash flow shortage for a business
- Completing the purchase of a property bought at auction
The key benefit of a bridging loan is that it allows you to move quickly on a time-sensitive property opportunity, without having to wait for the sale of an existing home or other longer-term financing to be in place.
This makes bridging loans a flexible and useful tool in the right circumstances.
Can You Get a Bridging Loan Without a Mortgage?
Yes, it is possible to get a bridging loan without having an existing mortgage.
Bridging loans are secured against property, so the lender’s primary requirement is that you own a property that can be used as collateral for the loan.
You don’t necessarily need to have an existing mortgage on the property in order to qualify for a bridging loan. The lender will assess the value of the property and your overall financial situation to determine if you meet their lending criteria.
That said, most bridging loan providers will require you to have some equity in the property that is serving as security. This means you’ll likely need to own the property outright or have significant equity built up, rather than having maxed out the mortgage on the property. The amount of equity required can vary between lenders.
Buying a property
Bridging loans are often used when purchasing a property, and in these scenarios there would be no existing mortgage.
Investors and landlords sometimes choose to use a bridge loan for convenience and speed. They know they can borrow 75% LTV and that the loan will be repaid when the buy to let mortgage starts.
Refinancing a property
So you own a property outright but need to raise some cash quickly.
A capital raising remortgage would do the trick but it will be around 8 weeks until you receive any money.
An unencumbered (no mortgage) property can be used by a bridge lender for security, and a loan of 75% could be available within 2 weeks.
First Charge vs. Second Charge Bridging Loans
When it comes to bridging loans, there are two main types – first charge and second charge.
A legal charge is a legal agreement that gives a lender security over a property, and this is formally registered on the title deeds with Land Registry. When you take out a loan that is secured against a property, the lender will place a legal charge on the property.
The main purpose of a legal charge is to protect the lender’s interest in the property. If the borrower defaults on the loan, the lender has the right to take possession of the property and sell it in order to recoup the outstanding debt.
A first charge bridging loan is secured against a property that you own outright or that has no other borrowing. This means the bridging lender has the first claim on the property if you default on the loan.
First charge bridging loans generally have more favourable lending criteria, lower interest rates, and less risk for the lender compared to second charge loans.
On the other hand, a second charge bridging loan is secured against a property that you already have an existing mortgage or loan on. The main mortgage stays unaffected and the bridge lender places a second charge with Land Registry.
In this case, the bridging lender’s claim on the property is secondary to the primary mortgage lender.
As a result, second charge bridging loans typically have stricter lending requirements, higher interest rates, and carry more risk for the lender.
Ultimately, the type of bridging loan you can obtain will depend on the equity you have in the property being used as security. First charge loans are generally preferable, but second charge bridging can still be a useful option in certain circumstances.
Let’s talk bridging loans!
Examples of Bridging Loan Use Cases
Bridging loans can be utilised in a variety of situations where short-term financing is needed.
Here are some common examples of how people use bridging loans:
Buying a New Home Before Selling Existing One
One of the most common use cases for bridging loans is when someone needs to purchase a new home before they have sold their existing property. The bridging loan allows them to complete the new home purchase quickly, without having to wait for the sale of their current house. This can be particularly helpful in competitive housing markets.
Read more: How a chain break bridging loan could help you to move house
Funding Property Development or Renovation Projects
Developers and investors often use bridging loans to finance the purchase and renovation of investment properties. The short-term nature of a bridging loan makes it well-suited for covering the costs of a project before the property is sold or refinanced with a longer-term mortgage.
Purchasing Investment Properties at Auction
Bridging loans can also facilitate the quick purchase of investment properties bought at auction. The fast access to funds provided by a bridging loan allows buyers to secure the property before arranging more permanent financing.
Covering Short-Term Business Cash Flow Gaps
Business owners may turn to commercial bridging loans to cover temporary cash flow issues, such as funding the purchase of commercial property or equipment. This can help them take advantage of opportunities without disrupting their regular business operations.
In each of these scenarios, the bridging loan acts as a crucial “bridge” that enables the borrower to complete a time-sensitive transaction or cover a short-term financing gap. This flexibility is a key advantage of this type of specialised lending product.
How to Apply for a Bridging Loan
Applying for a bridging loan involves a few key steps, and we strongly recommend working with an experienced broker throughout the process.
Where to Apply for a Bridging Loan
Bridging loans are offered by specialist finance providers, rather than high street banks. These lenders have expertise in this type of short-term, property-backed financing. Some of the places you can find bridging loan providers include:
- Dedicated bridging loan companies
- Private lenders and investor groups
- Some building societies and specialist mortgage firms
Using a Finance Broker
While you can potentially approach bridging lenders directly, we advise using the services of a specialist finance broker. They have established relationships with a wide network of bridging loan providers and can help you with the application process.
The Importance of Using a Broker
There are several key benefits to working with a broker when applying for a bridging loan:
- Access to the Whole Market – Brokers can search the entire bridging loans market to find the most suitable lender and terms for your needs.
- Expertise and Guidance – Brokers are specialists in bridging finance and can provide expert advice to ensure you understand the risks and requirements.
- Improved Chances of Approval – Brokers know lenders’ specific criteria and can structure your application to maximise the chances of getting approved.
- Time and Effort Savings – Brokers handle the legwork of the application process, saving you time and hassle.
By utilising an experienced broker, you can feel confident that you are accessing the bridging loan product that is right for your particular circumstances. This can give you the best chance of a successful application and help you avoid any pitfalls in the process.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
