What Is A Residential Bridging Loan?

A form of short-term, alternative finance, a residential bridging loan can be a valuable solution for property investors looking to bridge the financial gap of their next investment purchase or refurbishment project.

Secured against a Borrower’s current assets, the main benefit of a residential bridging loan is the speed in which it can be completed, enabling investors to raise funds fast and respond quickly to emerging investment opportunities.  

In a buoyant market that’s particularly important, providing investors with the opportunity to work to a tight completion deadline and adopt the position of a cash buyer; a position favoured by estate agents and their clients.

The speed at which a residential bridging loan can be processed is also valuable when investing in an auction property or new build development, both processes that typically see much shorter turnaround times, with auction purchases averaging a 28-day completion and some new build developers requiring investment purchases to complete within two weeks.

Investors may also look to residential bridging loans in order to: 

  • Fund a ‘chain-break’ transaction, a term given to buyers looking to circumvent the need to sell one property before buying another
  • Finance refurbishment projects, including properties on which its not possible to secure a mortgage due to their current condition
  • Release capital to finance other commercial projects
  • Extend the terms of an existing lease

Residential bridging finance can also be valuable when managing the sale of an inheritance property, providing the means to pay the inheritance tax bill before the property is sold.

Whilst being able to access finance quickly is attractive, it’s important that Borrowers are aware of the restrictions and potential risks too.

Residential bridging finance is, as a rule, only available as a short-term loan with six to eighteen months as standard. As the repayment term is smaller the interest rates are higher than long-term finance and should be carefully factored into all costs. Borrowers looking to secure a bridging loan should be confident of their position to deliver their project on time, be that complete on a sale or a refurbishment project.

As with any form of lending, Borrowers should also pay close attention to market conditions when considering taking out a residential bridging loan. Should a sale fall through, and a Borrower have two or more loans to repay, costs can quickly spiral. Similarly, the rising cost of goods can quickly see refurbishment budgets exceeded, along with costly delays to work.

The competitive housing market coupled with positive changing perceptions of specialist finance, has contributed to a surge in residential bridging loans over recent years.

For experienced investors or Borrowers with a guaranteed means of repaying the residential bridging loan within the agreed period then residential bridging can be a valuable means of short-term finance, enabling the Borrower to expand their investment property portfolio or enjoy the rewards of a refurbishment project.

They can be equally valuable to less-experienced Borrowers, although this audience is advised to be realistic about their costs and the timeframe within which they plan to complete their refurbishment or sale. An experienced Borrower knows that projects rarely run to time or budget and factors this into their finance agreement so as to avoid the risk of hefty penalty costs.

Regardless of your borrowing experience, do your research. A reputable residential bridging finance lender such as Mint Property Finance will work with you to decide if a residential bridging loan is right for you, identifying and addressing the potential challenges before they arise.

To find out more call our team on 0161 710 2006 or email hello@mintpf.co.uk.

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