Bridging loans explained.

Personal bridging loans are regulated by the Financial Conduct Authority, and are secured against your home, or another property defined as personal property – like one you've inherited.

The main reason you may choose to use a bridging loan as a personal customer, is to repair a broken chain, or to secure a new home before selling your old place.

Unless you’re a first-time buyer, it’s likely that any house purchase will be part of a chain.

While your chain might just be two people, it could be many more, which increases complexity and the odds of something going wrong. And just one hiccup can trigger a major domino effect that could scupper the whole process, wasting huge amounts of time and money, and causing unnecessary heartache for everyone involved.

So if you’re stuck in a slow chain with a vendor who wants to move quickly, or it’s on the verge of collapsing because a buyer has pulled out, a bridging loan might provide the ideal solution.

The short-term loan could effectively turn you into a cash buyer, meaning you wouldn’t need to wait for the sale to complete on your existing house before you can purchase your new home.

There are no monthly repayments on Together Personal Bridging loans so you won't end up paying for two mortgages at the same time.

Instead, interest is charged monthly and 'rolled up' to be repaid in a lump sum, with the initial loan and any fees and charges. Once your sale has gone through, you’ll simply use the proceeds to pay off your bridging loan in full, within the 12 months of your loan.

Commercial bridging loans, or unregulated bridging loans, are secured against properties you've bought (or are buying) either as an investment, or business premises.

With a commercial bridging loan, you’ll make interest payments each month while you have your loan, which you can bundle any fees into (please be aware, if fees are included in the loan, additional interest will be applied). You’ll then repay your bridging loan when your term ends – or earlier, if you choose.

Here at Together, we offer more than one type of bridging loan within commercial finance, depending on your circumstances and what you’ll be using your loan for.

Commercial bridging loans on a commercial property

When time is of the essence, you can use a Together Commercial Bridging loan to purchase a variety of commercial and semi-commercial property types, including:

• Office buildings
• Retail units, restaurants and takeaways
• Factories and warehouses
• Hotels
• Working farms, and land

Bridging loans are also popular with landlords and property investors, when they need to fund a new deal or bridge a gap between existing deals.

A bridging loan allows landlords and investors to act as cash buyers when purchasing a property. For example, if you’ve found a great property deal, but the vendor needs a quick sale and is prepared to offer the property at a discount.

At Together, you can also take out a commercial bridging loan on a residential property. A second charge loan (also known as a Secured loan) is one which is secured against a property that already has a mortgage (or a first charge) outstanding.

If you’re looking to raise funds to do a loft conversion, extension, or other improvements to your residential investment property (such as one you let out) and you already have a buy-to-let mortgage outstanding, this would enable you to raise the required funds.

In order to pay off your bridging loan, you could then choose to refinance onto a Buy to Let Secured loan.

Investors also sometimes use a bridging loan to buy a property at an auction before doing it up and selling it on for a profit, Great House Giveaway style. This type of bridging loan is most commonly referred to as ‘auction finance’.

Auction houses usually require buyers to complete within 28 days, so often auction finance is the best or only viable route. It’s designed for investment properties of all kinds – including a wide range of residential, semi-commercial, and commercial properties.

You’ll have up to 12 months to repay the loan in a lump sum – leaving you ample time to get the longer-term finance you need, or sell the property on.

If you're buying a house at auction to live in yourself, we can also help with this (which would be classed as a personal bridging loan) – and you won't make any monthly payments while it's in force.

There’s no time to waste in business, so a bridging loan can also be used when you quickly need an injection of cash. For example, if:

• You’ve secured a large new account: If you need to invest in raw materials to complete a large order, or need to hire staff to increase capacity, while waiting for your first invoice to be paid.
• You need to pay an unexpected tax bill: Clearing the bill leaves you free to concentrate on the important task of running your business.
• You need to secure new premises: Whether your business is booming, or just moving, you can use a bridging loan to secure a new site while your old one sells.
• You have up-front expenses to cover: Such as a new shop-fit or the purchase of stock, before you can begin trading from a new outlet.
• You have outstanding invoices: If too many clients have bought on credit, or are late in paying their invoices.

If you know money will be coming in over the next couple of months, the bridging loan can be paid off as soon as you have the funds to do so. Subject to the loans size, no ERC will be charged.

This short video gives a simple example:

If you’re looking to build or convert a property (or complete a larger development), you may choose to take out development finance – a bridging loan specifically designed for these types of projects.

With Together, you can borrow over two years, giving you the time you need to complete your project and sell the property/properties, or arrange longer-term borrowing based on its ultimate market value.

Projects may include:

• Residential developments: including student accommodation.
• Commercial developments: including industrial, retail units and mixed use.
• New builds and conversions.
• Part-developed sites.

If a development is going to be completed later than expected, or sales are taking longer than planned, a commercial bridging loan could allow you to exit your development finance loan (whether that’s with us, or another lender) onto a short-term loan. This could bridge the gap between the end of your original investment term and releasing the capital in your project.

This type of bridging loan is also commonly known as a development exit bridging loan, and can offer property developers the breathing space to find buyers (so they aren’t forced into accepting lower offers), or finish off minor development works.

A development exit bridging loan could also be used to release capital from a development before sales come through, giving you the funds to start working on your next project.