Bridging finance is a way of quickly raising short-term finance secured against residential or commercial property. Typically bridging finance is arranged within days, although it can take longer.
Most bridging lenders will claim that they are the quickest, offer the best service, or most flexible terms. In practise there is a huge variety of standards within the bridging finance sector. Although bridging lenders have improved their product offering and pricing it still pays to shop around, selecting the wrong lender or broker could prove very costly.
Bridging finance is typically used to bridge the gap between purchase and re-finance or sale of a property. There are many circumstances where bridging finance can be used:
- Property investors needing to complete quickly.
- Property developers
- Auction property purchases.
- Home movers
- Probate and divorce cases
There are many other uses, in fact if there is equity in a property then finance can be raised against it.
How to Arrange Bridging Finance
First and only rule – don’t accept the first deal you are offered, shop around and compare terms.
You should expect loan to values of around 75% to 85% maximum, 100% may be offered if there is additional security. You should not be asked to pay more than 2% in arrangement and set up fees (including broker fees) and you should also expect to be asked to pay the lender’s legal fees and valuation fees.
Interest rates do vary, but you would be doing well to be paying less than 1% per month. up to 2% per month is possible if you are arranging a particularly complex or awkward deal. You may be expected to pay an “exit fee” of around 0.5% to 1% – these are generally negotiable and you should try to get them removed.
Bridging finance is a tool which when used properly can be very effective.