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Date: 11 July 2022

Author: Chris Sheppard

What is a bridging loan?

Bridging loans are short-term loans that bridge the gap between two long-term borrowing arrangements. When they entered the market over 20 years ago, they were lending solutions only offered by a limited number of lenders.

During the credit crunch, banks tightened their lending criteria which made it harder for people and businesses to secure a traditional loan or mortgage. Bridging loans became a flexible and quick solution that prevented property chains from collapsing. Because of this, they grew in popularity massively over the years.

Bridging loans are now no longer a niche product, but a well-known and popular choice for property professionals and investors.

Bridging loans for residential property developers

Purchasing the property or land

First, let’s look at the most traditional use for a bridging loan – purchasing a property or land. Now more than ever, buying a property or land is hyper-competitive and time sensitive. A bridging loan provides quick access to the capital needed to secure the purchase while waiting for a longer-term loan to be put in place.

This is particularly pertinent when developers are looking to buy a house at auction, as the payment deadline is typically 28 days after the bid was accepted.

Funding multiple developments

Often, developers use the sale proceeds of a current project to repay their current development loan and move on to the next project. So, a development company can’t begin working on a new development until the existing one is sold. This delay can lead to financial losses and missed opportunities.

A bridge loan provides a way that developers can begin working on new projects without any delay. Sometimes known as a ‘development exit bridging loan’, the loan is taken out on the completed development that’s on the market. This enables developers to borrow a significant amount, which can be used to finance the purchase of a new development. Once the existing development is sold, the loan is repaid in full, leaving the developers free to continue on their new project.

Bridging loans for landlords

Residential light refurbishment bridging finance

This is where a specialised bespoke lender is beneficial to the borrower. If you’re looking to improve a property that you already own, a light refurbishment bridging loan can help. It covers the cost of contractors, tradesmen and the goods necessary to carry out improvements.

Due to the nature of the work needed, this loan is usually offered for about six months. The loan is offered against the property’s projected value when the refurbishments are complete. This means that improvements to the property carry significant weight when applying for the loan.

Bridge-to-let opportunities

The buy-to-let market is a popular way to invest in property. Owners get short-term income via rent and at the same time increase their long-term capital as the property increases in value over time. However, being able to purchase a property as soon as it comes on the market can be critical to getting the benefit from this.

Many investors don’t have enough capital readily available to buy a property outright. Additionally, organising a buy-to-let mortgage can be time-consuming. In contrast, a bridge-to-let loan can be approved quickly – so investors can buy prime property that will offer them the best returns.

Bridging loans for commercial property

After the credit crunch, many high-street lenders stopped funding commercial development all together while other commercial lending was significantly tightened. This paved the way for more specialist lenders to begin offering solutions for our clients.

Commercial bridging loans help raise the funds needed to purchase or refinance commercial properties, like cafes, football stadiums and shops. As with other types of bridging loans, they can be also used to refurbish the property as well. For example, turning an old run-down office into a modern and attractive space for workers.

Find bridging loans for your next project

At MSP Capital, we have over 40 years of experience in the property and finance industry. Our wealth of experience ensures we’re perfectly placed to provide you with the help you need. With a range of bridging finance options available, our team can help you find the right solution for your next investment project. Because of the type of bridging loans we offer, we’re not able to lend to individuals who need a loan for their own home.

To learn more, get in touch with Team MSP now on 01202 743400 or email us at [email protected].

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