From A to Buy: Ten frequently asked bridging finance questions.

Whether you’re a complete mortgage newbie, an experienced investor or even an expert broker – sometimes going ‘back to basics’ is best.

Maybe you need to bridge a funding gap – and, with that, you may have a knowledge gap too. Property finance can be complex, so we’ve put together a helpful explanation of one type of short-term home loan that can help you get from A to Buy.

In this Bridging Finance 101 guide, we’ve answered ten frequently asked questions that will be useful for anyone who needs to read up, refresh or revise when it comes to bridging.

What does ‘bridging loan’ or ‘bridging finance’ actually mean?

There are many different scenarios in which a bridging loan can be used, but they all have one thing in common: the need for quick-turnaround, short-term finance to provide a buffer between money going out and money coming in.

A bridging loan is usually on a 12 month term, and gets repaid in a lump sum at the end. There’s a monthly interest charge but, depending on the type of bridging loan taken, the interest may not be paid monthly but added on to the repayment lump sum at the end of the term.

There are lots of other key terms and phrases you’re likely to hear relating to bridging, but a couple of the most common are:

• Regulated bridging (or personal bridging) refers to loans that are regulated by the Financial Conduct Authority, taken by individuals acting in a personal capacity and securing the loan against a home or other personal residential property. Unregulated bridging isn’t, as the name suggests, regulated by the Financial Conduct Authority. Sometimes referred to as a ‘commercial bridging loan’, this covers finance taken in a commercial capacity for business purposes, such as when buying business or investment property or when funds are needed to cover an unexpected business cost from machinery to tax bills.

• A first charge mortgage is the primary loan secured against your home, usually covering mortgages for first time buyers, or used when remortgaging or moving home. This includes Right to Buy schemes and Shared Ownership. Second charge loans are secured against your home or property and run alongside, but independently of, your existing mortgage. For example, these loans can be used for debt consolidation and home improvements.

A bridging loan is one of the many possible solutions for short-term finance. Make sure you consider the risks, interest rates, fees and charges, as well as product suitability, before making any decisions.

When can a bridging loan be used?

Bridging finance can be used in a variety of different situations – for example:

• Repairing a broken chain, when a house purchase is at risk of falling through due to a broken down sale elsewhere

• Improving the Energy Performance Certificate (EPC) rating and energy efficiency of a property, through eco-driven renovation

• ‘Flipping’ a property bought at a lower value and then selling for a profit

• Renovating a property for the rental market

• Auction purchases, when fast cash is needed to secure the property

Want to find out whether bridging finance could help you? For a full run through of all the ways in which bridging finance can be used, check out our handy blog, ‘Bridging loans: Nine scenarios where short term bridging finance can provide a solution’.

How much can you borrow with a bridging loan?

Each case is unique (keeping our underwriters busy, and happy). The amount you can lend depends on a number of factors, so it’s always best to speak directly to a lender or broker to get an accurate picture of what’s possible.

At Together, we’ve lent on bridging loans for as little as £25,000 and for as much as £12million – and we pride ourselves on taking a flexible, common-sense approach to our lending decisions by judging each application on its merit.

What are the interest rates on bridging loans?

Interest rates are typically higher for bridging loans than for other conventional mortgages and property loans. Rates can vary based on factors – which may include:

• The total value of the loan, and the percentage loan to value (LTV) against the property that the loan is secured on

• Whether the bridge is for a commercial or personal property

• Your credit history

Interest is calculated on a monthly basis – sometimes paid monthly, and sometimes rolled into the final lump sum due at the end of the term, depending on which type of bridging loan you take.

Any fees associated with the bridging loan can be added to the monthly payments, or the final lump sum as well. This counts for any potential arrangement and redemption fees. Personal bridging loans don’t have an early repayment charge (ERC), but some commercial bridging loans do – so make sure you’re clear on the full total amount owed.

What criteria is considered for bridging loan applications?

Some lenders are more flexible than others – so it’s always worth doing research.

At Together, anyone can apply for a bridging loan, and we take a common-sense approach to every case. This means we consider applications from self-employed people, retirees and those with adverse credit.

What are the risks of bridging finance?

As with all loan or mortgage products, you should always make informed, considered and confident decisions – this involves looking at risks, interest rates, fees, charges and product suitability.

Bridging loans are typically offered at higher interest rates than other longer term mortgages or loans. This is due to the shorter repayment period and the associated risk to the lender.

In examples where you are using a bridging loan to transition between two properties, such as repairing a property chain break, you may have two loans running simultaneously. The bridging loan doesn’t replace or affect the existing mortgage on your original property (which could be with a different lender). You will need to make sure that the required payments are made on both properties.

It’s important to remember that a bridging loan is just one finance solution. Remortgaging and second charge mortgages may also be more suitable in some cases, or auction buyers may also consider options such as Buy to Let.

Ultimately, any property that is used as security, including your home, may be repossessed if you do not keep up repayments on your bridging loan.

How long does it take to apply for a bridging loan?

Turnaround speed is crucial for many people who seek bridging finance, as their situations often mean time is of the essence (like in the case of auction purchases, where there’s usually a 28-day deadline to hand over the cash).

With Together, the average turnaround time for bridging applications is 27 days (Bridgingtrends.com reported that the average industry completion for bridging finance was 58 days in 2023).

At Together we pride ourselves on the relationships that we cultivate with our clients, ensuring that we understand their circumstances fully and understand how our finance can best support them. In one, unique case, a long-standing customer had a £3million fund within four hours of contacting us. Of course, while we aim to service loan requests quickly in order to best support our customers, the speed of funding varies with every case.

Want to chat about what a bridging application might look like for you? Get in touch with our friendly team.

How do you repay a bridging loan?

When bridging finance is agreed, an exit strategy will also be discussed. This is an agreement put in place to ensure there’s a clear route to repayment – whether that’s waiting for money to come in from the sale of a property, from an unpaid customer invoice or from an inheritance that’s currently in probate.

An exit strategy should always be realistic and achievable – and, occasionally, it may be prudent to arrange a backup exit strategy too. Like all financial decisions, research and consideration should go into establishing how repayment will be made.

Overall, it’s important to remember that the longer it takes to repay a bridging loan, the more it will cost in the long run, on account of the interest that accrues on top of your loan each month. Paying the loan back after six months may work out cheaper than paying back after nine months, for example, as you won’t need to pay the extra three months of interest.

Aside from the questions and answers above, what do brokers need to know about bridging finance?

Knowledge of bridging finance as an option enables brokers to offer further versatility in funding options to customers. Offering funding solutions at the right speed with required criteria flexibility is the first step in finding the best outcome for your customer. But it’s important to make sure that you’re working with a lender with a trusted history and heritage, to protect your credibility and give assurance of a smooth customer experience.

If you’re a broker, you can find more information on how bridging loans could help your customers here.

How do I apply for a bridging loan?

The first step is simple. Get in touch with our helpful Together team, who are on hand to provide the answers and explanations you need to help you make the right choice for you. You can speak to an expert or check out our bridging finance website pages.