Bridging Loans

Bridging finance, sometimes referred to as a Bridging loan, is a short term loan, usually lasting between 1 day and 1 year. The application process is similar to a mortgage, but quicker. There are 3 types of Bridging loan, ie-

• Daylight Bridging Loan
  With this you buy and remortgage on the same day, all within the light of day, this is a 1 day Bridging loan.
  
• Closed Bridging Loan
  Before you draw down the finance for the Bridging loan, you already have an offer for a remortgage, or you have a purchaser who will be purchasing the property from you, and your purchaser will have a mortgage offer and will be ready to purchase from you as soon as you have completed.
  
• Open Bridging Loan
  At the time you draw down the Bridging loan, you have no imminent plan of repaying the Bridging finance.
  

Daylight Bridging Loans

This is the least expensive Bridging loan. The use of the Bridging loan is used for just 1 day and has an all-inclusive cost of 1.5% of the loan value. This cost is fully inclusive of the lenders arrangement fees, legal costs and interest charged, and has no redemption fees. The Daylight Bridging facility is used extensively by investors when purchasing either newly built property from a builder with a large discount or property sold at auction at discount. In either case the bridging company will accept your discount off the market value as a part, or your full deposit, depending on how much discount you have negotiated. You can usually borrow a maximum of 75% to 85% loan to value (LTV), in most cases we can achieve 85% LTV.

Closed Bridging Loans

Closed Bridging loans are similar to Daylight Bridging loans in so far as you will know how you will pay back the loan, ie, remortgage or a sale, and a date when you will be paying back the loan. However, you can have a closed Bridging loan for up to 1 year but most investors will repay the Bridging facility within 3-6 weeks. Once again, the lenders will provide a 75% - 85% loan to value. Each case is viewed on it’s own merits, but 80% LTV is the most popular.

The closed Bridging loan is used most by investors who purchase with in excess of 15% discount off the market value and quickly remortgage at 85% LTV. If the investor achieves more than 15% discount off the open market value, it is also possible to release some equity from the property, literally within days of the purchase.

Open Bridging Loans

Open ended Bridging loans have no specific date when the loan will be repaid. Anybody can access an open ended Bridging facility but the most common users are builders who are renovating or converting a building and often require additional funding for building work. Likewise, investors who purchase a large house and convert it into flats, who may also require additional funding. The Bridging company will normally lend 70% LTV and will also accept any discount off the purchase price as part of your deposit, or your full deposit, so log as there is 25% equity in the property. They will usually fund up to 100% of the building work cost, but they will require detailed costings.