A bridging loan is a property backed short-term loan, usually funded to bridge the gap. Reasons why you might use a bridging loan is when you’re at an auction and you need to purchase a property in auction and you need speed, or it might be that you’re waiting for another event to occur i.e you’re moving from your home to another home and you don’t want to be in a chain, or you might have found an under-valued property and you don’t have a deposit to hand so you want 100% finance. That is all available through a bridging loan. The question is how do you get a bridging loan
There are three main key factors involved in the success of your application for a bridging loan.
The first one is a profile of the applicant; so your assets and your liabilities.
The second major factor is the property that’s offered as the security.
The third and most important one is your exit strategy.
So, going back to the previous blog on reasons why you might get a bridging loan and we’ll use the example of getting a house that needs a lot of work, it’s an investment deal so you’re going to do some work and add value to the property and at the end you’re looking to, perhaps, sell the property.
So if your exit is to sell the property, that is fine, as long as your numbers stack up. If there’s any doubt by the lender, they would want to see a backup strategy (a backup exit plan of how you’re going to exit the bridging loan) because remember, a bridging loan is a short-term loan.
One of the key things people do is, if sometimes the numbers don’t stack up at the end when they’re doing the flip or it’s been on the market for too long and it’s exceeded the term of the loan, they may change your exit strategy at a later point. They may decide they want to keep the property and remortgage it and add it to their portfolio, (remortgage it onto an ordinary BTL product). That way, it’s a viable exit plan, but again, it all depends on the numbers and the deal.
Just remember. Bridging loans are short-term; they usually last between 0-18 months so it’s very important that you get the exit sorted with your financial advisor.
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