Bridging finance is an essential tool for property investors looking for short-term funding solutions. Whether it’s securing an auction property, funding a refurbishment, or resolving a mortgage chain break, bridging loans provide fast, flexible financing options. In this post, we’ll explore bridging finance, how it works, and why it’s a game-changer for property investors.
What is Bridging Finance?
Understanding Bridging Loans
Bridging finance is a short-term loan used by property investors and homeowners to “bridge” the gap between a purchase and securing long-term financing or selling a property. Bridging loans typically last between 6-12 months, with some lenders offering up to 24 months in specific cases.
There are two types of bridging loans:
- Regulated Bridging Loans – Used when the property being financed is the borrower’s residence.
- Unregulated Bridging Loans – Used for investment properties, buy-to-let, or commercial projects.
When to Use Bridging Finance
Bridging finance is used in situations where traditional mortgages aren’t viable due to time constraints or property conditions. Common uses include:
- Auction purchases – Meeting the 28-day completion deadline.
- Property refurbishments – Financing properties unsuitable for mortgage lending due to poor condition.
- Development projects – Funding construction and renovation work.
- Chain breaks – Allowing buyers to complete purchases before selling their existing home.
- Lease extensions and title splits – Structuring property deals more effectively.
How Does Bridging Finance Work?
Loan-to-Value (LTV) Considerations
Unlike mortgages, bridging lenders do not follow a strict LTV model. Instead, they assess each deal individually. Key factors include:
- The purchase price vs. actual market value.
- The amount required for refurbishment and its impact on property value.
- The expected end value (Gross Development Value – GDV).
Bridging loans can fund up to 75% of the purchase price, with some lenders offering financing based on the GDV, allowing investors to borrow up to 70% of the property’s end value.
Case Study: A Real Bridging Finance Example
An investor purchases a property for £85,000 and requires £30,000 for refurbishment. The expected end value is £160,000. A bridging lender provides:
- Purchase finance covering up to 70% LTV.
- Refurbishment finance released in stages.
- A total required investment of just £31,000 from the investor.
After the refurbishment, the property is refinanced at £160,000, repaying the bridge and providing capital for future investments.
Benefits of Bridging Finance
Speed & Flexibility
- Loans can complete in as little as 7-14 days.
- Suitable for properties that don’t qualify for mortgages.
- Customisable terms to fit investment strategies.
Increased Investment Potential
- Enables investors to secure high-value properties with lower cash deposits.
- Allows developers to build and sell properties without upfront capital.
Use of Angel Investors & Vendor Finance
Many bridging lenders allow angel investment and vendor finance to contribute towards the deposit, reducing the investor’s personal capital requirement.
Common Mistakes & How to Avoid Them
Underestimating Costs
- Include interest, arrangement fees, legal costs, and exit fees in calculations.
- Consider potential delays that could increase interest costs.
Not Structuring Deals Correctly
- Some lenders require personal funds for deposits, while others allow investor-backed financing.
- Work with specialist mortgage brokers to identify the best lenders for your deal.
Choosing the Wrong Solicitor
- Bridging solicitors must be experienced in handling short-term finance.
- Unresponsive or inexperienced solicitors can delay transactions, costing investors thousands.
Is Bridging Finance Right for You?
Bridging finance is a powerful tool, but it must be used correctly. To maximise its benefits:
- Work with a specialist mortgage broker to structure deals properly.
- Ensure properties are suitable for refinancing to avoid exit issues.
- Consider all costs and have contingency plans in place.
If you’re looking to grow your property portfolio or need fast, flexible funding solutions, bridging finance could be the perfect option. Speak to Hearthstone’s expert advisors today to explore your bridging options and unlock new investment opportunities.
