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.
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.
Auction purchase - With most auctions you will need to complete the purchase within a 28 day turnaround, bridging will enable you to secure the property whilst you look into other longer term options
Property development - With different varieties of bridging available, you can purchase the security and improve it dramatically whilst only ever using the equity within the property itself, meaning you could make a profit to fund your next project
Residential/Investment purchase - A property can be purchased using a bridge when conventional lenders would deem the property ‘un-mortgagable’ – allowing you to refurbish the property to a standard that lenders deem acceptable
Distressed bridging - Used when, for one reason or another, an applicant’s personal circumstances have changed and they are now in a position where they may be repossessed
Downsizing - You are looking to move to a smaller property, and retain some of the equity into your savings but you not have a buyer for you property yet, and have had an offer accepted on your new property
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.
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.
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.
During the course of dealing with us, we will ask you to provide us with detailed personal information relating to your existing circumstances, your financial situation and, in some cases, your health and family health history (Your Personal Data). This document is important as it allows us to explain to you what we will need to do with Your Personal Data, and the various rights you have in relation to Your Personal Data. The Data Protection Officer for DNA Financial Solutions is Drew Turner. We are registered with the Information Commissioners Office (ZA239120)
Your Personal Data means any information that describes or relates to your personal circumstances. Your Personal Data may identify you directly, for example your name, address, date of birth, national insurance number. Your Personal Data may also identify you indirectly, for example, your employment situation, your physical and mental health history, or any other information that could be associated with your cultural or social identity. In the context of providing you with assistance in relation to your Mortgage and Protection requirements Your Personal Data may include:
When we speak with you about your mortgage requirements, we do so on the basis that both parties are entering a contract for the supply of services. In order to perform that contract, and to arrange the products you require, we have the right to use Your Personal Data for the purposes detailed below. Alternatively, either in the course of initial discussions with you or when the contract between us has come to an end for whatever reason, we have the right to use Your Personal Data provided it is in our legitimate business interest to do so and your rights are not affected. For example, we may need to respond to requests from mortgage lenders, insurance providers and our Compliance Service Provider relating to the advice we have given to you, or to make contact with you to seek feedback on the service you received. On occasion, we will use Your Personal Data for contractual responsibilities we may owe our regulator, The Financial Conduct Authority, or for wider compliance with any legal or regulatory obligation to which we might be subject. In such circumstances, we would be processing Your Personal Data in order to meet a legal, compliance or other regulatory obligation to which we are subject.
We will collect and record Your Personal Data from a variety of sources, but mainly directly from you. You will usually provide information during the course of our initial meetings or conversations with you to establish your circumstances and needs and preferences in relation to mortgages You will provide information to us verbally and in writing, including email. We may also obtain some information from third parties, for example, credit checks, information from your employer, and searches of information in the public domain such as the voters roll. If we use technology solutions to assist in the collection of Your Personal Data for example software that is able to verify your credit status. We will only do this if we have consent from you for us or our nominated processor to access your information in this manner. With regards to electronic ID checks we would not require your consent but will inform you of how such software operates and the purpose for which it is used.
In the course of handling Your Personal Data, we will:
From time to time Your Personal Data will be shared with:
In each case, Your Personal Data will only be shared for the purposes set out in this Customer Privacy Notice, i.e. to progress your mortgage enquiry and to provide you with our professional services. Please note that this sharing of Your Personal Data does not entitle such third parties to send you marketing or promotional messages: it is shared to ensure we can adequately fulfil our responsibilities to you, and as otherwise set out in this Customer Privacy Notice. We do not envisage that the performance by us of our service will involve Your Personal Data being transferred outside of the European Economic Area.
Your privacy is important to us and we will keep Your Personal Data secure in accordance with our legal responsibilities. We will take reasonable steps to safeguard Your Personal Data against it being accessed unlawfully or maliciously by a third party. We also expect you to take reasonable steps to safeguard your own privacy when transferring information to us, such as not sending confidential information over unprotected email, ensuring email attachments are password protected or encrypted and only using secure methods of postage when original documentation is being sent to us. Your Personal Data will be retained by us either electronically or in paper format for a minimum of six years, or in instances whereby we have legal right to such information we will retain records indefinitely.
You have the right to request a copy of the personal information that we hold about you, its origin and any recipients of it as well as the purpose of any data processing carried out.