Bridging Finance

What Is Bridging Finance?

Bridging finance is a short-term secured loan used to bridge a funding gap — typically while a longer-term finance solution is arranged or a property transaction completes. Bridging loans are generally available for terms of 1 to 24 months and can often be arranged more quickly than conventional mortgage products.

Because of their short-term nature and the speed at which they can be arranged, bridging loans typically carry higher interest rates than long-term mortgage facilities. They are most suited to situations where the short-term cost is justified by the transaction, the opportunity or the timeline involved.

Bridging finance is used across a range of property types — residential, commercial, semi-commercial and land — and is available to individuals, limited companies, LLPs and SPVs depending on the lender.

Common Uses for Bridging Finance

Auction Property Purchases

Property purchased at auction typically requires completion within 28 days of the auction. Conventional mortgage lenders cannot usually act within this timescale. Bridging finance can provide funds to complete the purchase quickly, with a longer-term mortgage or sale arranged as the exit strategy once the immediate deadline has passed.

Chain Breaks and Delayed Completions

When a property chain collapses or delays arise between buying and selling, bridging finance can allow a buyer to proceed with their purchase before their existing property has sold. The loan is then repaid when the sale of the existing property completes. This avoids losing a purchase due to a chain issue outside the buyer's control.

Property Refurbishment

Properties requiring significant refurbishment are often considered unmortgageable in their current condition by standard mortgage lenders. Bridging finance can fund the purchase and refurbishment costs, with the intention of refinancing onto a standard buy-to-let or commercial mortgage once the works are complete and the property is lettable or sellable.

Development Exit Finance

Developers who have completed a project may benefit from refinancing away from expensive development finance onto a bridging loan at a lower rate while they sell completed units or arrange long-term finance. This can significantly reduce monthly interest costs during the sales marketing period.

Purchasing Unmortgageable Property

Some properties — including those without a functioning kitchen or bathroom, those with structural issues or those in certain condition categories — are considered unmortgageable by standard lenders. Bridging finance can be used to purchase and refurbish such properties, with a standard mortgage arranged once the property meets normal lending criteria.

Other Short-Term Property Finance Needs

Bridging finance can also be used in other scenarios where speed, flexibility or the nature of the asset makes conventional mortgage finance unavailable or impractical. These may include pre-planning purchases, land acquisitions, probate purchases and urgent refinancing requirements.

Is This Funding Suitable?

Bridging finance may be relevant where:

• ✓ There is a clear and credible exit strategy for repaying the loan
• ✓ Speed of funding is important and conventional finance is too slow
• ✓ The property does not meet standard mortgage criteria in its current state
• ✓ The borrower has or is acquiring a suitable security property
• ✓ The short-term cost is justified by the transaction or opportunity

Typical Funding Amounts and Terms

• ✓ Loan amounts: typically £50,000 upwards — larger amounts available for commercial property
• ✓ Loan-to-value: typically up to 65–75% of open market value
• ✓ Terms: typically 1 to 24 months
• ✓ Interest: often charged monthly, rolled up or serviced depending on the facility
• ✓ Security: first or second charge over residential or commercial property

The Exit Strategy

A clear and credible exit strategy is one of the most important factors in bridging finance approval. Lenders need to understand how the loan will be repaid before the term expires. Common exit routes include:

• ✓ Sale of the security property
• ✓ Sale of another property owned by the borrower
• ✓ Refinancing onto a residential or buy-to-let mortgage
• ✓ Refinancing onto a commercial mortgage
• ✓ Completion of a development with proceeds from unit sales

The more credible and documented the exit strategy, the stronger the bridging finance application is likely to be.

What Lenders Typically Look For

Bridging finance lenders assess applications differently to conventional mortgage lenders. Key factors typically considered include:

• ✓ The property type, condition and open market value
• ✓ The loan-to-value (LTV) being requested
• ✓ The strength and credibility of the exit strategy
• ✓ The borrower's experience and background
• ✓ Credit history — some lenders consider adverse credit depending on their criteria
• ✓ The borrower's overall financial position and any other borrowings
• ✓ The proposed loan term and its appropriateness for the transaction

Costs and Risks to Consider

Bridging finance carries higher monthly interest rates than standard mortgage products, typically charged monthly rather than annually. Additional costs can include arrangement fees, valuation fees, legal fees and exit fees. It is important to factor in the full cost of bridging finance when assessing whether it is the right solution for a particular transaction.

If the exit strategy does not materialise as planned — for example, if a property does not sell in the anticipated timeframe or a planned refinance falls through — there is a risk that the loan term may need to be extended or alternative funding found. Borrowers should consider this risk carefully before proceeding.

Example Scenario

A property investor sees a commercial unit at auction that requires significant refurbishment before it can be rented. The auction requires completion in 28 days, which is too fast for a standard commercial mortgage. Bridging finance is arranged to fund the purchase, with a planned exit of refinancing onto a commercial mortgage once the refurbishment is complete and the unit is tenanted. The bridging loan provides the speed needed to complete at auction while the longer-term finance is arranged in parallel.

How NexGen Finance Can Help

NexGen Finance helps clients review bridging finance enquiries, understand the key lender considerations and progress suitable cases with experienced commercial finance providers. Call 0330 010 0061 or submit an enquiry to discuss your bridging finance requirements.

Frequently Asked Questions