Bridging finance is a flexible and affordable short-term facility with an endless list of potential applications. When time is a factor, fast-access bridging finance can be arranged in a matter of days and used for almost any legal purpose.
One of the most popular uses for bridging finance is picking up residential properties at prices lower than their true market value. Auction property purchases are routinely funded with bridging finance, as are private sales where the seller needs to complete the transaction as quickly as possible.
Bridging finance effectively turns the borrower into a cash buyer, giving them a major advantage over competing bidders.
One key issue faced by bridging loan customers is planning ahead for prompt repayment of the loan. Most bridging loans are designed to be repaid within a period of a few months, typically when the property purchased with the loan is sold on at a higher price.
But what if your goal is to retain the property you purchase, either for your own personal use or to let out? Can a bridging loan be used to fund a time-critical purchase or investment, without the need to sell the property to repay the loan?
Transition to a Longer Term Facility
The short answer is yes, and it is a popular option among investors. Buy-to-let landlords in particular regularly use bridging loans to expand their portfolios with no intention of selling their properties to repay the balance owed.
Instead, the alternative is to transition the short-term bridging loan to a longer-term facility. As the loan’s repayment date approaches, the borrower takes out a longer-term mortgage to repay the bridging loan in full. After which, they repay the balance of the mortgage gradually, over the course of several years or decades.
There is an alternative to the above that can make the whole thing much easier and more convenient. Bridge-to-term is a specialist type of bridging loan, which at the end of the agreed term automatically transitions to a longer-term facility.
Not all lenders offer bridge-to-term loans, but their prevalence is growing across the UK’s specialist lending sector. Where available, the biggest advantage of bridge-to-term is the significant reduction in paperwork and administration. As both loans are organised and issued by the same lender, only one application is necessary.
In addition, taking out both loans with the same lender can also minimise borrowing costs. Only one arrangement fee is payable, a competitive rate of interest is agreed early on and there are no exit fees when transitioning from the bridging loan to the longer-term loan.
Best of all, a bridge-to-term loan will usually provide a great deal of flexibility, should the borrower’s plans change. If they choose to do so, the borrower may have the option of selling their property before the end of the initial term in order to repay the bridging loan and bring the contract to a conclusion. If not, they can retain their property and pay for it more gradually, as would be the case with a conventional mortgage.
Ask your broker about the potential pros and cons of bridge-to-term, if you would prefer not to sell the property you plan to purchase with a bridging loan.
