Looking for some quick cash to complete a property purchase?
The UK property market doesn’t stand still. One day you might be out viewing a property with a view to making an offer, only for it to be sold to another buyer who had the funds to complete straight away.
The problem?
Traditional mortgages take too long to arrange. By the time you have an offer accepted and your lender has processed your application, that dream property you set your heart on will be gone.
The solution…
Enter bridging finance – the specialist solution that has been empowering property investors and homeowners to overcome this all-too-common problem for years. In fact bridging finance is absolutely revolutionising property transactions across the UK.
Bridging loans, like those offered by https://bridgeloandirect.co.uk/bridging-loans-scotland, are an increasingly popular way to secure funding for time-sensitive property deals. Whether it’s buying at auction, filling a chain break or just accessing funds quickly, these short-term loans offer a solution for when time is of the essence.
Want to see how popular bridging loans have become? The UK bridging loans market is expected to hit £10.9 billion by the end of 2024 with market growth forecast to continue.
What you’ll discover:
- What Makes Bridging Loans Different From Traditional Mortgages?
- The Speed Factor: Why Time Matters In Property Deals
- Top 4 Scenarios Where Bridging Finance Shines
- Understanding The Costs & What To Expect
- Your Exit Strategy: Planning Your Way Out
What Makes Bridging Loans Different From Traditional Mortgages?
Picture a sports car. Sleek, powerful and built for speed.
Traditional mortgages are more like your standard family saloon. Solid, reliable but not designed to go anywhere quickly. Bridging loans, on the other hand, have one goal: speed.
Bridging loans are short-term, property-backed finance that can last anywhere from 1 month to 2 years. Rather than scrutinising your income like high street banks, bridging lenders care about:
- The value of the property you’re buying
- Your exit strategy (your plan to repay the loan)
- The security you can provide
This means that the process is much quicker and streamlined with decisions made much faster.
The Speed Factor: Why Time Matters In Property Deals
Speed in property transactions isn’t nice to have. It’s a requirement.
Take this scenario for example:
Property auctions. These all-important dates usually only give you 28 days to complete your purchase. Factor in a traditional mortgage and you have a good chance of not winning your auction deposit refunded.
But it’s not just auctions where time is of the essence. Recent research shows that 23% of bridging loans are now used to stop chain breaks. A significant increase from the 19% recorded in the previous quarter.
The main reason for this?
Conveyancing delays and a sluggish high street mortgage market means more property buyers are using bridging finance to complete on their new home before their old one has sold.
Fast turnaround time is another key advantage of bridging finance with the average bridging completion now just 38 days in Q4 2024 (compared to many months with traditional mortgages).
Top 4 Scenarios Where Bridging Finance Shines
You won’t need bridging finance for every property purchase. Bridging loans are a specialist solution designed for when these common property scenarios occur:
1. Auction Purchases
This is where bridging finance really comes into its own.
You find an undervalued gem at auction, win the bidding and – blimey – now you’ve got 28 days to cough up the purchase price.
Thankfully, that’s where bridging finance comes in.
Recent figures reveal a significant rise in demand for auction finance which has increased from 9% to 14% in Q2 2024. Buyers are starting to see that auctions can be great opportunities, even in a relatively flat market.
2. Chain Break Prevention
Property chains are so common yet so fragile. One weak link can bring the whole thing crashing down.
Bridging finance enables you to buy your new house or flat before your existing property has sold. By bridging the gap you can avoid the stress of temporary accommodation or – even worse – losing your dream property.
3. Refurbishment Projects
Found a property that’s a little rough around the edges but just needs a bit of TLC?
Bridging finance providers don’t care if the house has no kitchen, dodgy electrics or structural issues. It’s the property’s potential value once renovated that’s important.
4. Commercial Opportunities
A 20% increase in bridging loan applications in the commercial property sector over the last year shows when an opportunity arises in this market speed is everything.
Whether it’s expanding your business premises or snapping up a great investment property, bridging finance enables you to act quickly while others are still arranging funding.
Understanding The Costs & What To Expect
Hold up. You’ve probably seen the prices and bridging loans are off-puttingly expensive right?
Yes and no.
But first…
Let’s face it. Bridging finance is an expensive form of borrowing. That’s kind of the point. After all, you’re paying for super-fast turnaround, flexibility and the ability to take advantage of opportunities.
Typical costs include:
- Monthly interest rates 0.5% to 1.5% per month
- Arrangement fees 1-2% of loan amount
- Valuation costs £300 to £1,500+ depending on property value
- Legal fees Both yours and the lender’s
Here’s the good news though…
Many bridging lenders now offer no early repayment penalties. If you can plan an exit within a few months you can potentially save a lot of interest costs.
Your Exit Strategy: Planning Your Way Out
This is a biggy. Every bridging loan has to have an exit strategy.
The most common exit strategies include:
- Sale of the property: Complete the renovations and sell for a profit
- Refinancing: Switch to a high street mortgage when the property becomes mortgageable
- Sale of another property: Use the proceeds from your existing home
- Business income: Use business cashflow for commercial deals
Fun fact most people don’t realise…
Lenders place a huge amount of importance on your exit strategy. Lenders want to know you can afford to make the repayments and that you have a well thought out and realistic plan for repaying the loan in the agreed timescale.
The market data supports this with a decrease in re-bridging activity (where a borrower rolls the loan over into a new one) from 9% to 7% – a clear sign that borrowers are successfully exiting their loans as planned.
The Market Momentum Continues
There is one major theme emerging from all this latest market data.
The bridging finance sector is going strong.
Market predictions are that the sector could see the bridging loan book hit £12.2 billion by the end of 2025 and current total loan books have already exceeded £10 billion for the first time.
Why are the forecasts so bullish?
- Interest rates are settling down
- Lenders are improving operational efficiencies to boost lending capacity
- More brokers are starting to understand the versatility of bridging finance
- It remains an incredibly challenging time to get approved for a traditional mortgage
The bridging finance sector has moved on from being considered an alternative form of finance to being seen as an essential element in the UK property finance landscape.
Final Thoughts
Bridging loans are not suitable for every situation. They are specialist loans for specialist circumstances where speed and flexibility are prioritised over cost.
But when those circumstances arise…
Having access to bridging finance gives you a huge advantage in being able to complete your property purchase, turning opportunities into reality.
The key is knowing when bridging finance makes sense, having a clear exit strategy and working with experienced professionals who can guide you through the process.
