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Specialist Lending

Bridging Finance and when to use it?

Bridging finance is a type of short-term loan typically used to bridge the gap between purchasing a new property and selling an existing property. It is a temporary financing solution designed to provide immediate access to funds when needed.

Bridging finance is a valuable tool, offering a convenient solution for individuals or businesses that need to purchase property swiftly but lack immediate funds. It also serves as a financial lifeline for property development projects, unexpected expenses, or business working capital, providing relief in challenging economic situations.

The loan is secured against the property being purchased or sold and is usually offered for between 1 and 12 months. Due to their short-term nature and the higher level of risk involved, interest rates on bridging loans can be higher than those of other types of loans.

Specialist lenders are the usual bridging finance providers, and the application process is often significantly faster than traditional loans. This efficiency can provide a sense of reassurance, knowing that your financial needs can be met promptly. However, it's crucial to meticulously assess the costs and risks of this type of finance before committing. Seeking advice from a financial advisor or specialist lender is highly recommended to determine if bridging finance aligns with your needs.

Example of Bridging Finance

Let's say you want to buy a new house but haven't yet sold your current house. You find your dream home on the market and don't want to miss out on the opportunity to purchase it. However, you don't have the cash to buy the new house before selling your current one.

For instance, imagine you've found your dream home on the market but haven't sold your current house yet. In this situation, a bridging loan could be your solution. It would be secured against the equity in your current home, and the lender would use that equity as collateral to provide you with the necessary funds to purchase the new property. This allows you to buy the new property while you wait for the sale of your current house to complete.

Once your house is sold, you will use the proceeds to pay off the bridging loan. When the existing property is sold, the loan is typically repaid in full, along with any interest and fees.

Bridging finance offers a flexible solution for property developers who need short-term financing to cover the costs of a property renovation or construction project until long-term funding is secured. This flexibility empowers developers to manage their financial needs effectively, instilling a sense of control and confidence in their financial planning.

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