Getting from A to Buy: dispelling the common myths and misconceptions of bridging finance

Bridging is a versatile product that can be a great addition to any investor’s toolkit. Offering flexibility and speed, it can be the perfect lending solution to go from opportunity to investment.

In a market where mainstream lending is increasingly becoming more difficult, with the tightening of criteria, specialist lending is more in demand for investors. According to the latest Bridging Trends data, contributors transacted £831 million of bridging loans in 2023, making it the highest recorded annual gross lending figure since Bridging Trends launched in 2015.

However, even with the booming figures mentioned above, many misconceptions exist about bridging finance and what it can be used for. To stay educated on the benefits and uses for investment, so that you can move quickly to achieve your property goals, here are some of the most common myths and misconceptions to look out for.

High interest rates mean there will be little to no return on investment

Whilst interest rates for bridging loans are higher than a mortgage, ultimately bridging finance can enable investors to leverage their equity and fund further purchases which in turn create a profit.

Bridging finance is a product of last resort

Bridging loans are a strategic offering rather than the last resort. They offer flexible and fast lending solutions to borrowers in the short term where time is of the essence, whilst waiting for the longer-term solution to come through.

Examples would be auction purchases where there is a tight deadline for completion, property renovation where the property is deemed not habitable for traditional lenders, light refurbishment maximising the value of a property before sale, business investments and development exit loans as they provide valuable time for the developers to sell the assets.

While bridging loans are a great way to secure assets quickly, they are intended as short-term finance and therefore there needs to be a clear exit strategy to avoid any fees or charges that can come from late payments or failure to exit.

Bridging finance is only used for property purchases

While bridging finance is synonymous with property, it’s not the only use. Businesses often use bridging loans to raise capital for renovations, repairs or large-scale improvements.

Considering the flexibility and speed of bridging loans, they can also be beneficial in certain situations to provide short-term cash flow relief or the ability to purchase fixed assets to fuel growth. Typical examples of this could be tax bills, land purchases or business expansion.

The process is complex

Similar to any other form of secured lending there is an application process, documentation required, as well as a valuation, all of which form part of the underwriting process. Lenders such as Together have led the way in streamlining the process to enable quick decisions, with the use of automated valuation models (AVMs), and in-house legal teams to ensure that the urgent need of the borrower is met.

Bridging finance is only available to UK residents

Bridging loans are not restricted to UK applicants or residents. For example, Together will consider Foreign Nationals or Expats. It is all about understanding the customer’s objective, the source of the deposit, the security and the viability of the exit.

Only individuals with a clean credit history can access bridging finance

To take out a bridging loan you don’t necessarily have to have a perfect credit history. Ultimately a lender is looking to understand the borrower’s requirements, the asset they are securing the loan against, and the viability of the exit. Make sure you have a clear path to paying back the loan in time and in full to avoid default. You need to bear in mind that if you’re unable to pay your loan back and the exit strategy fails this will lead to implications such as fees and charges with the ultimate consequence of repossession.

You can only access bridging finance if you’re a property developer or investor

Some investors are unaware that bridging finance is not just for commercial use, you can use it for your personal finance needs too. For example, regulated bridging loans can be used to fund purchases of residential properties and keep things moving when selling a house and buying another if a chain breaks or you need to move faster than those below you in the chain.

To conclude, for access to fast, flexible finance, a bridging loan is a great avenue to explore. One of the most important aspects of bridging finance is ensuring you communicate with your broker or lender.

Unlike many mainstream lenders, at Together we take a common sense approach to lending, assessing each of our customer’s personal circumstances, using our 50 years of expertise to find the best possible outcome. Our experienced team is here to support investors from concept to completion, helping them achieve their property ambitions.

Any property used as security, including your home, may be repossessed if you do not keep up your mortgage or any other debt secured on it.