3 Common Uses for a Bridging Loan and Everything You’d Need to Get One

For a property developer, there is nothing worse than missing out on a great opportunity due to a lack of finances, especially when you know these finances will be available to you in a few weeks’ time.

However, this doesn’t have to be the case. You can get a bridging loan while you wait for your finances to come through, as these are approved and accepted quicker than a mortgage.

A bridging loan can be used for any legitimate purchase, although, here are just 3 of the reasons as to why someone may require a bridging loan:

Chain Break Finance

If a property chain breaks in the final stages of a transaction, and you need a bridging loan to cover the finances until you find a new buyer for the home, then this is called a ‘chain break finance’.

This finance will allow the property sale to continue, whereas the purchase would fail without this.

Property Auctions

More often than not, purchasing a property at an auction requires a large deposit immediately and completion within 28 days. Plus, these types of sales may be quite spontaneous and therefore, there won’t be a mortgage in principle agreement in place just yet.

Property purchasers would be able to take advantage of the bargains at the auction by applying for a bridging loan. You can read more about bridging loans here.

Property Refurbishments

Bridging loans can be used similarly to development finance. A lot of mainstream banks won’t lend on properties that aren’t in good condition and will need a lot of work done, whereas bridging lenders will take more time looking at the future value of the property and make their services readily available.

Alternatively, refurbishment finance could help too.

What You Would Need for a Bridging Loan

Most lenders require different things from their bridging loan applicants, although the majority will have a list of the generic information that they require.

Personal Details

Something that the lender will definitely want to know about you, before being able to consider your application for a bridging loan, is your personal details, including:

  • Full name
  • Date of birth
  • Nationality
  • Current address
  • Annual income
  • Employment status and details
  • Other properties that you currently own

If the bridging loan will be going towards refurbishing a property that you currently own, then you may also be asked for:

  • The proposed works or refurbishments to take place
  • The cost, or estimated cost, of the works that will take place
  • The property value before and after the work has been completed

Alternatively, refurbishment finance could also help. For more information, click here.

Documentation

You may also be asked by your lender for documentation. Some of these include:

  • Documentation that shows your proof of address (utility bills, etc.)
  • Driving licence or passport that shows your full name
  • An AIP for the follow-on mortgage
  • Your property portfolio schedule (only if there are other properties under your name)
  • A very detailed schedule of works – costs and timeframes, including the planning permission
  • All bank statements from the past 3 months

Loan Request Details

The lender would like to know how much you’d like to borrow and when you’d be able to approximately pay it all back by. Most loans are capped at 1 year, although bridging loans can be paid earlier, and it does not have to be held for the full term.

Legality and Exit Strategy

If you’re applying for a bridging loan, then you’d need to find reliable residential conveyancing solicitor to help you with the documentation and the paperwork. Your bridging loan lender may want the details of the solicitor that you’re using.

It is also recommended that you speak to a financial advisor prior to applying for a bridging loan, as they will be best to assess the suitability to your needs.

The last thing that they will want would be an exit strategy, and it can be the decider on whether you receive a bridging loan or not. The exit is usually the sale of the property or refinancing on to a long-term deal such as a commercial or residential mortgage.

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