How Bridging Finance Works

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A bridging loan is a short-term loan secured on property. It is designed to bridge a gap, usually between needing funds now and a sale or longer-term refinance that will follow. Bridging is used where speed matters, or where a property or situation does not fit a conventional mortgage.

Common uses

Borrowers typically use bridging finance to:

• buy at auction, where completion is usually required within 28 days;
• complete a purchase before an existing property has sold;
• buy a property that cannot yet be mortgaged, for example because it needs refurbishment;
• raise capital against property already owned, for business or investment purposes;
• refinance an existing loan that is due for repayment.

How the loan is structured

Bridging loans usually run for between 3 and 24 months, with 12 months being common. The lender secures the loan with a legal charge over the property, usually a first charge, although second charge lending is also available where the existing lender consents.

The amount a lender will advance is measured as a percentage of the property’s value, known as the loan-to-value or LTV. Some lenders also take additional security over other property to support a larger loan.

Interest is charged monthly but is not always paid monthly. It can be retained, meaning deducted from the loan at the start for the agreed term; rolled up, meaning added to the balance and repaid at the end; or serviced, meaning paid each month as it falls due. Many loans use a combination of these. Because retained interest and fees come out of the loan, the amount you receive on completion, the net advance, will be lower than the gross loan.

The costs involved

Besides interest, the main costs are the lender’s arrangement fee, which is usually deducted from the loan; valuation fees; and legal fees for both your solicitor and the lender’s. Some lenders also charge an exit fee. The full costs will be set out in the lender’s terms, and we will take you through them before you proceed. Please see our Commission and Fees guide for how Churchbridge is paid.

The exit

Every bridging loan needs a clear, credible plan for repayment, known as the exit. This will usually be the sale of the property or a refinance onto a longer-term mortgage. Lenders look at the exit as closely as they look at the property, and a well-evidenced exit makes a loan easier to arrange and often cheaper.

Regulated and unregulated loans

Churchbridge arranges unregulated, business-purpose bridging finance. If you, or a close family member, live in the property or intend to, the loan is likely to be a regulated mortgage, which we do not arrange. Please see our Occupancy guide for more detail.

How the process works with Churchbridge

Once we understand your requirement, we structure the case and present it to suitable lenders from the hundreds we have access to. When you have chosen a lender’s terms, we issue our Engagement Letter and complete our identity checks. The lender then instructs a valuation and its solicitors, and your solicitor deals with the legal work. Straightforward cases can complete within a couple of weeks, and sometimes in days. Our guides on Valuation, Legals and Insurance explain how to avoid the most common delays. You can always pick up the phone to your case manager to talk about the speed of completion — we all want you to complete as quickly as possible.