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Bridging lending makes mainstream leap

Posted: August 1, 2017

Bridging finance was once regarded as a last resort strategy, mainly used to purchase houses when buyers were stuck in house buying chains. However, bridging loans are now seen as more of a mainstream product, particularly by property developers.

Developers building new properties or developing existing buildings for residential use will typically be offered a bridging loan worth 65% of the eventual selling price, says a July 2017 BridgingAndCommercial.co.uk article. This will equate to 80% to 90% of the development costs. Mainstream high street lenders will probably lend a maximum of 60% of the selling price, which leaves the developer needing more finance for the development work. This is why many developers prefer bridging finance.

Repairs for rented properties are also often financed through bridging loans. Property developers who do not have a long-term relationship with their bank may find it difficult to obtain a bank loan for property projects. Bridging lenders have more flexible loan criteria and can offer loans based on the viability of a project rather one influenced by how long the developer has been with a bank.

Mortgage lenders will often deny a mortgage for a property that needs developing. Although bridging loans are short-term loans of 24 months or less, some lenders are prepared to issue a bridging loan to replace a loan that has expired if the completion of the development means that the property is eligible for a long-term mortgage.

For these reasons, borrowers and brokers often see bridging lenders as their first choice rather than a last resort.