Head of Content
Head of Bridging and Commercial
Is a bridging loan a good idea? To answer this question you will need to explore their pros, cons and potential alternatives. This guide has all of these bases covered and will even tell you how to choose the right solution for your needs.
Is a bridging loan worth it?
Bridging loans can be a useful type of finance in the following situations:
- You need funds to invest in or buy a property quickly
- You are not eligible for a mortgage in the short term
- You won’t have the funds to buy or invest in a property for 6-24 months
Scenarios where these factors might come into play include buying property at auction, a chain break or having short-term affordability or credit issues.
If any of the above applies to you, bridging finance might be a viable option but you should always take a close look at the advantages, disadvantages and risks of this type of borrowing before you proceed. We will now explore these variables in depth…
Advantages of bridging finance
The pros of bridging loans for buying property and other purposes are as follows:
Speed: Bridging loans are very fast to arrange compared to mortgages and other long-term forms of borrowing. Applications usually take 5-21 days to complete, but with the help of a specialist broker, you could get your funds even sooner.
Flexibility: As bridging finance providers are often unregulated, they can lend with more flexibility as long as your exit strategy is strong. This means it can be possible to secure finance in situations where mortgage lenders cannot help.
Versatility: Bridging loans come in several varieties and can be used for residential, commercial and semi-commercial property investment/purchases. They are also viable options for land transactions, buying at auction and other types of deal.
Choice of repayment options: While bridging is always interest-only, you can choose how interest is charged. The three options are rolled up (all paid at the end), pay monthly and retained (‘borrow’ the interest and total is calculated at the start).
100% LTV loans available: For borrowers with extra security to put down (such as property they hold equity in) it is possible to secure a bridging loan with a 100% loan-to-value (LTV) ratio, which means you can be approved with no deposit.
Disadvantages and risks
There are drawbacks to bridging loans that you should also consider, and they include:
High interest rates: Interest is charged daily, and as a result, the overall cost of it can be significantly higher than for other types of finance such as mortgages.
Less protection: As most bridging loan transactions are not regulated by the Financial Conduct Authority, you will have less protection against things like poor advice and miss-selling than you would with regulated types of finance.
Can be high risk: Since bridging loans are secured, there is a risk of losing the asset the debt is secured against if your exit strategy fails to pay out. In the worst case scenario, this could mean losing a property you own as a result.
Fees to pay: On top of higher interest rates, bridging loans can come with additional charges too, including arrangement fees, valuation fees, exit fees and solicitor fees.
How we can help you lower the risk
If you are unsure whether a bridging loan is the right option for you, it’s a good idea to speak to one of our bridging experts. We have brokers who are specialists in this type of finance, and they can run through the pros and cons with you while offering bespoke advice.
Our bridging finance specialists have the knowledge, experience and lender contacts to help you get the best outcome when it comes to applying for your finance, and the guidance they are able to offer can act as a safety net against the potential risks involved.
Make an enquiry below to begin a free, no-obligation chat with one of our bridging experts.
Speak to a bridging finance specialist today
Bridging finance alternatives
If you are unsure whether bridging finance is the ideal solution for you, it can help to read up on the alternatives to it so you know your options. They typically include:
Remortgaging to release equity
If you already own a property and have substantial equity in it, you could remortgage to release that capital and use it as an alternative to taking out a bridging loan.
This might be a cheaper alternative in some scenarios, but may not be an option if you don’t have enough equity, need the funds quickly or cannot (or do not wish to) refinance.
Second charge mortgages (secured loans)
Secured loans, which sit behind a primary mortgage as a secondary debt, can be a viable alternative to bridging loans, and may be worth considering if remortgaging is not an option.
Bridging finance could be a better alternative if you need the funds urgently, but it’s important to compare the overall cost of both options with all fees factored in before applying. A second charge mortgage is obviously not an option if you don’t own a property.
Equity release
Equity release products such as lifetime mortgages can help you release the capital tied up in your home so it can serve as an alternative to taking out bridging finance.
This is only an option if you are over 55 and own your own property. One of the biggest drawbacks of using equity release instead of bridging is that your loved ones’ inheritance can be impacted when you pass away, although there are flexible products that avoid this.
Development finance
Development finance works similarly to bridging loans, except it’s tailored to the specific needs of builders and property developers. The main difference is the way the funds are paid out. They’re delivered in tranches as each phase of the project is completed.
The main reason you would consider development finance over a bridging loan is if the project was a large scale construction undertaking.
Unsecured borrowing
Depending on the amount you need to borrow, personal loans or business loans (for commercial ventures) can act as an alternative to bridging. This will likely only be an option if you need a relatively small amount of capital for your property purchase, say, £25k or less.
Like with bridging finance, rates can be high for unsecured borrowing but one potential advantage is there is no immediate risk to your assets in the event that you struggle to repay the debt. Be sure to assess the overall cost of both options before making a decision.
Why choose Teito for your bridging finance needs?
If you have decided that bridging finance is the right option for you, our expert brokers can help you get the best possible on it, through their knowledge, experience and contacts. They can also explore every possible alternative with you and offer bespoke advice on each one.
Here are just some of the reasons why people choose us for their bridging needs:
- We have brokers in our team who specialise in bridging
- They have access to exclusive rates and deals
- We are 5-star rated in leading review websites
- We can saving you time by overseeing the application process
Ready to take advantage of a free, no-obligation chat with a bridging finance specialist to find out what your options are? Get started here.
FAQs
In some ways they are high risk as they are always secured against a property or asset, which means that security could be repossessed if you are unable to repay the debt.
They are also riskier because most of these trasactions are unregulated, meaning you have less protection against mis-selling and bad advice than you would with a mortgage.
The stronger your exit strategy, the lower the risk involved. You can also lower the risk by applying for your finance through a broker who specialises in bridging loans.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.