Bridging loan finance for UK commercial and private property

Commercial and private property open and closed bridging finance specialists

Bridging Finance

MCI Brokers Ltd UK has a great deal of knowledge and access to a variety of lenders to finance property, land and other assets. We listen, are patient to understand your needs, have creative ideas to obtain the best product to achieve your goal. We act on your behalf promptly. This type of borrowing is dependent on the economic climate, loan to value (LTV) and transaction criteria.

Introduction

A UK bridging loan can be used to fund property investment(s) in an ever changing UK housing market or business purposes. We arrange competitive Bridging Facilities through our network of lenders for; licensed premises, office block, land or residential properties, our lenders will look at all types of security for a bridging loan facility.

Bridging Finance is commonly used for the following reasons:

Purchasing property at auction
Land purchase
Property refurbishment or conversion
Chain-breaking mortgage
Purchasing property where the surveyor recommends a retention
To help homeowners who have been or are about to be repossessed
To stop bankruptcy
When funds are required within days rather than weeks

What is Bridging Finance?

Short term fast track funding, quicker and easier to obtain than standard mortgage finance
Where an offer is given, completion is usually only days after.

A bridging loan is not designed to be a long term funding solution and is best used to provide immediate liquidity into property transactions that otherwise would fall through if not for the availability of a bridging solution.

Bridging finance is usually a secured loan, therefore, has to be secured against something acceptable to a bridging lender, usually land or property.

Bridging Loans are available for a whole range of finance requirements and can be on the basis of a 1st, 2nd or even 3rd charge equity release for most purposes. Bridging finance may be required when a borrower moves house and the date of completion of their existing property falls after the date of their new purchased property.

There are two types of bridging...

Open Bridging
Closed Bridging

Open bridging

This arises when a borrower wants to take out a new mortgage without having a buyer for their existing mortgaged property – this can represent high risk, as there is no guarantee that their existing property will be sold within a reasonable period of time.

NOTE

Open bridging finance can be a disaster – a bottomless pit into which a borrower effectively makes repayments on two mortgages. Borrowers should be advised to think long and hard about the consequences of ‘open bridging’.

Closed bridging

This arises when a borrower already has a firm purchaser for their existing property – this is less risky.

Explanation to Closed Bridging Finance

Closed bridging is where there is a known completion date with an offer to lend. This is usually in the shape of a mortgage offer.
The closed bridging solution allows 100% + funding for a property. This means, discounted properties can be funded as no deposit is required. This is often used by Property Investors who operate in the ‘below market value’ (BMV).

Example: Market Value (MV) £100,000

Purchase at £80,000; 20% below market value (BMV)
Re-mortgage of 85% of MV £100,000 = £85,000 the lender provides bridging finance of £80,000 to purchase the property
The solicitor having bought the property with the bridging facility then re-mortgages the property with another lender using the bridging facility for £85,000 (85% loan to value), returning £5,000 to accommodate all or towards incurred costs.

Advantages of Bridging

1. There are few advantages of open bridging, other than enabling the borrower to complete the purchase of the new property more quickly than would otherwise be possible.

2. Closed bridging provides a valuable service – it enables a purchase to go ahead which otherwise might break down as a result of the purchase/selling chain being irrevocably disrupted.

3. Despite the cost disadvantage (described below), bridging finance can usually be obtained at a reasonable rate. It is recommended the borrower sets aside money during the bridging period to prevent problems in financing this facility.

Disadvantages of Bridging

1. Open bridging can impose a heavy financial burden on the borrower for quite a long period of time, particularly if the borrower has an inflated view to the value of the property which is on the market.

2. Bridging is another cost at a time when the borrower is already incurring many other outgoings.

3. Arranging a bridging loan requires another negotiation with the lender, involving time and expense.

4. Many borrowers believe that they pay ‘over the odds’ for bridging finance, particularly when the need for such funds is underestimated.

Bridging finance is usually offered by all banks and some of the larger building societies. For obvious reasons, lenders are much more prepared to lend in closed bridging situations than open bridging.

Bridging Loans - What are they good for?

The attributes of Bridging Finance, speed, flexibility, easy access, make this type of loan ideal for use in many situations. Bridging Finance can be used in many situations where other loan options are not available. A short term loan may help with emergency funding to meet a deadline or as an alternative where no other finance is available.

Prevention of credit defaults
Credit repair
Capital raising for legal purposes

Bridging Loans also have their uses for home movers

Buy to Let investors
Property traders
Property developers
Business Finance
Individuals that just need to raise money quickly

When to utilise a Bridging Loan

Buying a property to renovate
Refurbish a property before selling it
To buy property to renovate or refurbish prior to re-mortgaging via a buy-to-let mortgage, a useful option for those seeking to build a property portfolio.
To purchase a site that requires major development and draw-down cash at various stages of the build by extending the bridging loan.
To complete an auction purchase, to avoid losing your deposit, you must complete within the specified time period, usually 28 days, but sometimes it can be 14 days.
To purchase a property currently unfit for mortgage purposes pending repairs or replacement of major defects, for example the property may be derelict or subject to mortgage retention.
To purchase a property and negotiate a discount over the cost of the bridging loan by being in a position to complete the transaction quickly.
To raise cash for unexpected bills such as PAYE or VAT.
To raise capital to invest in other property at home or abroad.
To settle or prevent CCJ's, bankruptcy or having your property repossessed.

Bridging finance is usually more expensive to arrange than a conventional mortgage or a commercial mortgage. Depending on the size of the loan and the risk involved the fees that will need to be taken into account:

A typical lender might charge an acceptance fee of 2% for open bridging and there is likely to be an exit fee of around 1% payable when the arrangement ends.
Valuation fees

A bridging loan can be a cost effective, hassle free solution to purchasing a property. You may need bridging for a variety of reasons.

By using our broker service you have access to a range of bridging products that can be used in your property transactions from one day to one year.