Bridging loan mortgages

What is a bridging loan?

Ever wondered how someone managed to quickly find the money to take on a buy-to-let project? There’s a good chance a bridging loan was involved. From big commercial development projects that need to hit the ground running, to residential properties that need refurbishing before being let out to tenants, a bridging loan helps to ‘bridge’ the financial gap.

A bridging mortgage is a short-term, interest-only loan designed to get your project moving financially, until you can secure long-term finance or sell the property. They fall into the buy-to-let mortgage category, and they’re commonly used when access to money is needed quickly and standard mortgage criteria is unlikely to be met. Unlike a standard buy-to-let mortgage, you don’t need the property to be in lettable or mortgageable condition to be approved for a bridging loan.

How do bridging mortgages work?

Though they are a type of buy-to-let mortgage, bridging loans work in a slightly different way to the standard mortgages you’re probably used to.

Short-term funding

Bridging mortgages are a type of loan, with terms usually lasting from a few months to a few years, depending on your project. This is different to other types of buy-to-let loans, which can span decades.

Fast approval

A lot of people applying for bridging loans need funding fast, and lenders work quickly to ensure deadlines are met. If you were applying for a standard mortgage, there’s a high chance the approval process would take too long, causing delays to your project or resulting in you missing out on a property investment.

Interest-only

There are various ways to handle bridging mortgage payments; rolled-up interest, retained interest or monthly payments. Most investors choose rolled-up or retained interest, as this means you avoid having to make monthly repayments whilst work is being carried out.

Secured against property

Bridging loans are usually secured against the new purchase, an existing asset you own or multiple properties, if you’re applying for a larger loan.

Requires an exit strategy

If you want to be approved for a bridging mortgage, you need to know how you’re going to pay the money back. You might plan to refinance onto a buy-to-let mortgage, or you might want to sell the property. Lenders want to know what you’re planning before they approve you.

Who are bridging mortgages best for?

• Buy-to-let investors – Bridging loans help investors purchase properties quickly, renovate them and refinance them onto long-term buy-to-let mortgages.
• Portfolio landlords and SPVs – For those wanting to acquire multiple properties quickly, or buy homes that need work before becoming mortgageable, bridging mortgages can provide the funding.
• Property developers – For property refurbishments, conversions and pre-development work, bridging loans can get things moving, until another type of mortgage becomes an option.