Broken property chains
A bridging loan can fix a broken property chain.
For example, if your client has found their perfect home and are waiting on the sale of their current property to complete, but the buyer suddenly pulls out, they can get a bridging loan to purchase their new home.
That way, they have more time to sell their property and can use the proceeds of the sale to repay the bridge.
If a property is unmortgageable, such as a house without a kitchen or bathroom, borrowers can use a bridging loan to purchase it.
They can undertake the renovations required to transform it into a mortgageable property, which will allow them to change the finance to a mortgage or sell the property.
They can repay the bridging loan with these funds.
Renovations / conversions
A bridging loan is an option if a borrower’s goal is to renovate a property with the aim of adding value to sell at a higher price.
Purchasing a property that has less than 80 years left on the lease can be challenging, as the banks may decline the mortgage.
This is where a bridging loan could be convenient, as borrowers can purchase the property with a short lease, to then extend the lease so that the mortgage will be approved.
Once they had secured the purchase with a lease extension, they can either sell the leasehold for a profit (it is usually a lot less to extend a lease than the increase in the value) or re-mortgage and use the funds to pay off their bridging loan.
Some lenders will also fund the cost of the lease extension if needed.
If your client wanted to purchase land or property for the sole purpose of getting planning permission (or a use change) and then re-selling, a bridging loan could finance that transaction.
Land with planning permission granted commands a higher value, so they could sell on for a profit or alternatively develop it themselves, exiting on to a development finance facility.
When purchasing a property at an auction your client will usually have to pay a deposit of 10% of the full purchase price on the day of the auction - and will have up to 28 days to pay the remaining funds.
A bridging loan can be very helpful when they need access to money fast, so many people use bridging loans for this purpose and then repay the loan once they have the mortgage.