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Bridging Finance

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What is bridging finance?

Bridging finance is the short-term financial solution you need to complete a residential property purchase or commercial investment. This is a short-term loan that typically lasts between 1 and 18 months. It is meant to cover the time difference between two property-related transactions, or in order to finance a property that is currently unsuitable for a typical mortgage (refurbishment required). As the name implies, it is meant to bridge the gap.

Bridging finance is needed when you need to buy a property before finalizing the sale process of another property. Commonly used in property investment and development, but still common place in some residential transactions, bridging finance is used to secure a property, generate cash flow or to be used to fund light works as long-term financing is being put in place.

Bridging finance is usually always repaid when a property in the transaction is refinanced or sold.

How do I qualify?

The determining factor of whether you qualify for bridging finance is the value of the property you want to buy. Unlike mortgage loans, bridging finance lenders are not usually so interested in the borrower’s financial situation or income and are more interested in the projects figures as a whole. This flexibility and simplicity are what make bridging finance valuable and powerful.

Open and closed finance

Bridging finance can be open or closed finance.

Closed bridging loan – this is a type of bridging loan with a clearly outlined exit plan. This is the most preferred type of bridging finance by borrowers and lenders because the exit plan is certain.

Open bridging loan – this type of bridging finance has no definite exit timing or source of repayment.

Different lenders offer bridging finance. Traditionally, this was a preserve of banks but this has changed after the financial crisis. Specialist property lenders can offer bridging finance products too, and we here at DNA Financial Solutions have access to the whole of that market, allowing us to find products most suitable to circumstances.

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What purposes can bridging be used for?

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FAQs

How much can I borrow?

How much you can borrow for bridging finance depends mostly on the value of the property borrowed against. Lenders calculate the rate based on the property’s purchase price, as it is common with mortgage borrowing. However, a few lenders can issue loans based on current market rates and the value of the property. Some lenders will even allow you to borrow based on the expected value of the property after completion of the project. This is referred to as the gross development value.


What are open & closed bridging loans?

Closed bridging loan – this is a type of bridging loan with a clearly outlined exit plan. This is the most preferred type of bridging finance by borrowers and lenders because the exit plan is certain. Open bridging loan – this type of bridging finance has no definite exit timing or source of repayment. Different lenders offer bridging finance. Traditionally, this was a preserve of banks but this has changed after the financial crisis. Specialist property lenders can offer bridging finance products too, and we here at DNA Financial Solutions have access to the whole of that market, allowing us to find products most suitable to circumstances.


Will bridging fit my circumstances?

It is always best to talk with one of the team first, but we have seen bridging finance used very effectively for the following: downsizing (any age), refurbishments, site acquisition (exit of development finance), lease-extensions, short-lease properties, assigned Contracts, below market-value purchase, probate related cases, business cash flow, personal cash flow, portfolio re-structure, auction purchase, additional development funds, divorce settlement, debt forgiveness, overseas purchases, re-financing development finance to allow for sale, and refinancing existing bridge.