What Can Bridging Finance Be Used For?

Bridging finance is a form of short-term property finance which is typically used by borrowers when a traditional mortgage, commercial loan or development facility is not immediately available or suitable. Bridging loans are typically repaid through the sale of a property, the borrower refinancing onto longer-term funding or another defined repayment route.

Although bridging loans are often associated with urgent transactions, they are also widely used as part of planned investment and property strategies, for example BRRR projects. From auction purchases and refurbishments to refinance exits and commercial acquisitions, bridging finance is often used when timing, property condition or the transaction structure makes conventional funding more challenging. The property, the structure of the transaction and the proposed exit strategy will all ultimately determine the suitability of a bridging facility.

Bridging Loans for Property Purchases

Bridging finance is very commonly used to fund property purchases before longer-term mortgage finance is available. This may arise where a buyer is waiting for a mortgage offer, refinancing another asset or structuring a wider transaction. In these situations, bridging finance can provide the temporary funds required to secure the purchase immediately, allowing the borrower to complete the transaction and arrange their longer-term funding afterwards.

Because bridging loans are designed to be short-term solutions, they are often used where timing and certainty of execution are more important than securing a long-term finance solution from day one. For many investors and buyers, the priority is securing the opportunity before it is lost altogether.

Bridging Loans for Auction Property

Bridging loans for auction property are among the most established uses of short-term property finance. Auction purchases usually come with fixed completion deadlines, which often requires the buyer to complete within a matter of weeks (usually 28 days) after a successful bid. Bridging finance is frequently used for auction purchases because the timescales of a conventional mortgage application don’t usually meet the deadlines required for auctions.

Preparation before the auction is critical. A good understanding of the likely borrowing amount, lender’s valuation requirements, and the detail around the intended exit/repayment route can significantly help to reduce delays once contracts have been exchanged. Borrowers considering buying property at auction should ideally review potential funding options with a specialist broker or lender before bidding in the auction.

Bridging Loans for Refurbishment

Many investors use bridging loans for refurbishment where a property requires improvement or renovation before it can be sold or refinanced. Works might involve light refurbishment, modernisation, energy efficiency works, reconfiguration or other value-add works designed to improve the property’s condition and increase its market value. In many cases, in its current condition the property may not support the investor’s intended exit strategy or sale, making specialist short-term funding an extremely useful interim solution while any works are completed.

Bridging Loans for Unmortgageable Property

Some properties are simply unable to be financed using a mainstream mortgage at the point of purchase. This may be due to significant disrepair (uninhabitable), a short lease, title issues, missing kitchens or bathrooms, structural concerns or other issues which fall outside conventional mortgage criteria. In these circumstances, bridging loans for unmortgageable property can provide a helpful solution to proceed with the acquisition, while any issues preventing longer-term mortgage finance are resolved.

Once any necessary improvements or remedial works have been completed, the borrower would then refinance onto a more conventional funding solution and repay the bridging loan from the mortgage advance.

Bridging Loans for Bridge-to-Let Projects

Bridge-to-let finance is commonly used by landlords and investors who plan to refinance onto a buy-to-let mortgage after completing improvement works, getting the property to a lettable condition, or securing tenants. This strategy is particularly relevant in refurbishment-led investment projects where a property may not initially qualify for conventional buy-to-let mortgage funding. Instead of attempting to arrange long-term finance at the outset, investors can use bridging finance to acquire and/or improve the property before later moving onto a conventional investment mortgage and repaying the bridging loan.

Bridge-to-let is often associated with refurbishment and BRRR-style investment strategies, where creating value is an important part of the overall plan.

Bridging Loans for Commercial Property

Bridging loans for commercial property are frequently used for offices, retail premises, industrial units, mixed-use buildings and semi-commercial assets. Compared to residential property, commercial can add additional complexity beyond simply timing challenges because commercial properties can involve lease and tenant reviews, vacancy considerations, trading performance assessments and more detailed valuation requirements than a standard residential purchase.

When a borrower needs to acquire or refinance a commercial asset before a longer-term structure is in place, bridging finance can provide a practical interim solution.

Bridging Loans for Development Exit

Bridging finance can also be a useful solution to property developers where a development project has reached construction practical completion but the developer is unable to repay their original development facility or requires capital for their next project. Development exit finance is useful where a developer requires more time to sell completed units or plans to retain development units through arranging longer-term refinancing. In these scenarios a bridging loan can provide that additional time, helping to reduce funding pressure whilst the developer achieves their exit strategy.

Bridging Loans for Capital Raising

Bridging finance can also sometimes be used to raise capital against an existing property asset to be used for a specific property-related purpose, such as for a deposit on another acquisition, funding refurbishment works or helping complete a time-sensitive transaction elsewhere. The intention here is generally using the borrowers existing equity within the property to achieve a defined objective with a clear repayment plan.

Unlike unsecured business borrowing, bridging loans are secured against property and are structured around a specific short-term requirement rather than ongoing working capital needs.

When Bridging Finance May Not Be Suitable

Bridging loans are designed for situations where there is a clear short-term funding requirement and a realistic and credible repayment strategy. Where there is no credible exit route, insufficient property equity, significant unresolved legal issues or where a conventional mortgage or longer-term facility would be more appropriate from the outset these loans are less suitable.

Importantly, the most suitable funding option is not always the fastest one. Understanding the purpose of the borrowing and the intended exit remains central to selecting the right funding solution.

Speak to Adler Green About Bridging Finance

Adler Green helps property investors, developers and borrowers assess suitable bridging finance options for purchases, refurbishments, refinance exits and time-sensitive property transactions. We can help you understand the likely lender options, facility structure and exit route before you proceed, and help you calculate costs using our online bridging finance calculator. Discuss your bridging finance requirements with us today.