Getting from A to Buy: an A to Z glossary of bridging finance terms.

It may sound obvious, but it’s something many people aren’t aware of; bridging finance can, quite literally, bridge the gap in property buying journeys.

There are lots of 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.

When navigating any big financial decisions, there are lots of words and phrases to understand. That’s why we’ve put together a handy A to Z of bridging terms (some finance-specific, some fun) to help you see some of the concepts at a glance.

• If you see a Scenario alert! label next to one of the terms, it means that it’s one of the possible situations in which bridging finance can help get someone from A to Buy. Clicking on the label will take you straight to our scenario blog - Bridging loans: Nine scenarios where short term finance can get you from A to Buy.

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A

Auction Scenario alert!

One of the ways that bridging finance is commonly used. Property bought at auction often has a strict 28-day time limit for completion, and bridging loans can be arranged in line with this as a stop gap until the property is flipped and sold, or a longer term mortgage can be arranged.

Automated Valuation Model (AVM)

AVMs are statistics-based computer programs that provide immediate property valuations without the need for a physical survey. They use property information such as recent sales of comparable properties, property characteristics and price trends to work out a current market value without the need to visit the site. At Together, we accept automated valuations on some of our bridging loan products, meaning we can get you the answer and the finances you need faster.

B

Broken chain Scenario alert!

If you’re waiting on a house sale to finance the next move, your buyers (and even their buyers) could also be in the same predicament. One broken link can cause a breakdown in the chain, putting multiple purchases at risk. Bridging finance can act as the stop gap when the chain breaks, allowing a buyer to purchase their new home even if the sale of their current property falls through.

C

Criteria – and common sense

Are you a sole trader, freelancer or side hustler? Maybe you’re retired, or have a less-than-perfect credit score. Bridging loans can be accessible to people from all backgrounds, and lenders with flexible criteria, like Together, take a case by case approach to applications so that individual circumstances are considered. That’s what we call common sense.

Cross charge

A cross charge bridging loan lets a buyer borrow on two properties. It means that they can leverage equity in both an existing property and the property they’re buying. For example, if you’re looking to purchase a property that needs some work, it may be down valued (valued lower than the purchase price) and your lender might not be able to provide the full loan amount you need, based on the loan to value (LTV) requirements. Securing against another property as well will increase the amount you can borrow based on LTV, giving you the funds to complete your purchase and turn ambition into reality.

D

Developer

Bridging finance can be a vehicle for professional developers to purchase land or property – whether it’s from the ground up, or significant refits and renovations on an existing property.

E

Early repayment charge (ERC)

This is often added to the balance when finance is repaid in full before the arranged end of term.

For bridging loans, early repayment fees are often not included so the earlier you can repay your loan in full, the less it’ll cost overall. This is because you only have to pay interest for the months between taking out the loan and paying off in full – the amount of interest owed after 3 months will be less than after 6 months for example – and you aren’t penalised with additional charges for paying back before the end of the term.

EPC renovations Scenario alert!

The energy performance certificate (EPC) of a building shows how energy efficient the property is. Short-term funding, in the form of bridging finance, can help pay for renovations to improve the EPC rating – such as boiler repairs, double glazing, insulation and more. This can ultimately lead to lower utility bills and less carbon emissions being produced – a win for your pocket and the environment.

F

Flipping a property Scenario alert!

Some people pay a lower cost and purchase property in need of extensive renovation, with the intention to sell it for a much higher cost when the work is done. Bridging finance could be used to fund the purchase and the upgrade work, and then repaid when the property sells.

Free legals

You may see lenders providing ‘free legals’. This means that the standard legal work to register the lender’s charge over the property’s legal title is provided at no cost. It means that the loan is legally secured against the property so the lender can repossess it if payments aren’t made. A solicitor of the lender’s choice will complete the work on your behalf and it can speed up this part of the process. However, it doesn’t cover other legal costs that may be incurred such as transfer fees to repay your existing lender or other unusual search fees.

G

Growing an investment portfolio Scenario alert!

Being a landlord or investor – for residential or commercial properties – means that you’re always looking for the next opportunity to expand. Bridging finance is a common tool for those looking to add properties to their portfolio.

H

Heavy refurb Scenario alert!

When starting out, or scaling up, businesses can use bridging finance to fund large purchases – such as factory machinery or restaurant refits. When trading begins, the lump sum can be repaid.

I

Interest rate

Typically, interest rates are higher for bridging loans than for other loan types. Rates may vary based on factors such as credit history, whether the loan is for commercial or personal property and total loan value (among other things). As bridging loans are paid back in months rather than years, the overall interest paid will be lower when compared to longer term mortgages and loans. For bridging loans, interest rates are often displayed as per month rather than per annum.

Independent legal advice

A lender may ask you to seek independent legal advice so that they can be sure that you understand all the terms and conditions of your bridging loan, and any associated risks. You will then be asked to provide a certificate of advice from a solicitor before signing your loan agreement.

J

Jargon-free journey

From getting on the ladder, to scaling up. And from buying a first rental house, to expanding a portfolio. Even for that first, third or thirtieth commercial investment. Each property journey is different, and that’s why we try to simplify the process to ensure you’re aware of the risks, rewards and options.

K

Knowledge Bank

Knowledge Bank is a mortgage criteria search system that makes it easier for mortgage brokers to find and arrange loans for their customers. This is particularly useful when applications aren’t straightforward, or require specialist finance. For example, when a customer’s circumstances see them turned away from the mainstream or the high street, that’s when lenders like Together can take a common-sense approach and apply flexibility to find the right solution.

Knowledge Bank will display all of the relevant options from various lenders, based on the criteria entered about the case. This provides brokers access to a wider range of finance solutions to cater for their customers’ needs.

L

Landlords and lettings Scenario alert!

As one of the most common users of bridging finance, landlords often take out a bridge to purchase a property ahead of renovation, before they put the property up to let.

Loan to value (LTV)

The loan to value (or LTV) ratio is how much money is borrowed against the value of the property. For example, borrowing £210,000 for a £300,000 property would be a 70% LTV mortgage.

M

Mortgage brokers

When an individual approaches a mortgage broker, they’ll present a problem or a requirement and ask for the broker to provide some finance options. The expert broker has the challenge of identifying the right product and lender for each application. Bridging loans are a specialist finance option, meaning that customers are often unaware of the benefits and risks; ultimately, mortgage brokers have the unique opportunity to explore bridging with customers who might’ve otherwise felt like their property ambitions were unachievable.

N

Non-serviced

A term you might hear lenders say; this is finance-speak for a loan where the interest and administration fees are paid in a final, one-off lump sum when you pay back you’re loan, instead of monthly payments. Also referred to as retained interest or rolled-up interest. All regulated bridging is non-serviced. Serviced loans have monthly payments.

O

Online decisions

A decision in principle is a fairly reliable indication of the amount of money your lender is willing to lend.

At Together, property professionals looking to buy at auction can get a decision in principle on a bridging loan in minutes. And, it can all be done online so you can get a quick decision and can bid with confidence.

You can still get quick decisions on our other bridging loans, for both business and personal use. But, we may need to ask a couple of questions in order to give you a quote that is accurate and, more importantly, fair for you. Enquire on our website and our expert team will be in touch to help you get the decision you need to get from A to Buy.

P

Property type

Commercial properties might be shops, warehouses or offices. Residential properties might be a home to live in or a property to let out. It might be empty land that will become something new, or a shell of a building that will be transformed to something completely different. Bridging finance can be taken out on lots of different property types (including non-standard properties such as high rise flats or properties with no working bathroom).

Q

Quick purchase opportunity Scenario alert!

If there’s a time-sensitive chance to snag property or land, and you need to act fast, a bridging loan might be an option for quick-turnaround, short-term finance.

R

Refinance Scenario alert!

This is where bridging finance could be used for short-term cash flow needs, or to pay back funds already borrowed from another lender.

S

Second charge

A first charge mortgage is a loan taken out with the purpose of buying a property. And a second charge mortgage is a second loan which is secured against a property you already own. A second charge runs alongside - but completely separate to - an existing first charge.

T

Twelve-month term

This is the most common term length for bridging loans. Loans can be repaid in full at any time within this period, with most bridging loans available without early repayment charges (ERC). This incentivises paying back as early as possible to reduce the overall amount of interest that will be repaid on the loan.

U

Unregulated

Regulated bridging (or personal bridging) refers to loans that are regulated by the Financial Conduct Authority (FCA). These are taken by individuals acting in a personal capacity, and are secured against a home or other personal residential property. Unregulated bridging isn’t, as the name suggests, regulated by the FCA and refers to commercial and residential loans taken out for business purposes.

V

Valuation

This is a term that is likely to come up in many, or most, mortgage conversations. A valuation provides the current value of a property on a specified date, and is done for the lender’s validation of the loan amount. It won’t uncover, confirm or deny any structural issues or repairs. Although some lenders will want a physical valuation to take place, other lenders, including Together, can accept automated valuations in some cases, speeding up the bridging loan process.

W

Waiting for funds Scenario alert!

Maybe it’s waiting for an inheritance, a divorce settlement, or maybe irregular income means you’re waiting for your wages – bridging finance could mean you don’t have to miss out on a property purchase in the meantime.

X

Exit strategy… ok, we're bending the rules here.

When you take out a bridging loan, you will discuss and agree on an ‘exit plan’. This is the strategy that you have in place, to prove there’s a path to repayment. An exit plan might be that money is expected to come in from a house sale, an unpaid customer invoice or from an inheritance that’s currently in probate, for example.

Y

Your opportunities, your ambitions.

It really is as simple as that. At Together, we like to talk about how we help people achieve their property ambitions – but that isn’t possible without the passionate people who have dreams and the drive to achieve them. We help to open the door to opportunities; you take the next steps to turn your ambitions into success.

Z

Zero monthly payments

Most bridging loans are repaid in one lump sum at the end of the term, meaning there aren’t any monthly payments to be made. Worth noting, some bridging loans have a monthly interest payment to be made, so always worth making sure you’re clear on what is expected up front.

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