Bridging finance, once a niche product, has gained significant traction in recent years, with both personal and commercial finance customers demonstrating increasing interest. According to the latest Bridging Trends report, gross lending for bridging loans reached £196.2 million in the first quarter of 2024, showing its growing appeal.
Over 8 million homes in England currently have an Energy Performance Certificate (EPC) rating below band C, indicating poor energy efficiency. A bridging loan can help property owners fund energy-saving improvements, such as installing insulation or heat pumps, thereby enhancing their EPC rating and reducing energy costs. Moreover, an improved EPC rating can add value to a property and attract potential buyers.
Bridging loans aren’t solely for quick property flips; they can also facilitate long-term investments. Landlords can use these loans to purchase and renovate properties, ensuring they meet habitable standards and securing a steady rental income. This also makes it easier to obtain a long-term buy-to-let mortgage at lower rates later on.
Auction buyers, who typically have just 28 days to complete a purchase, can also benefit from bridging loans. These loans help secure the property quickly, avoiding missed deadlines and potential deposit losses. Furthermore, they allow buyers to renovate properties to meet long-term finance criteria or sell them for profit.
Related: Albatross finishes £1.52m bridge across three Somerset sites
In 2023, 35% of UK house sales fell through after an offer was made, often due to chain breaks. Bridging loans can help individuals access funds to purchase their dream home, giving them time to sell their existing property at the right price and preventing a rushed sale below market value.
Businesses can use bridging loans to invest in vital infrastructure or refurbishments, driving income generation. Once trading starts or the investment’s benefits are realized, the generated funds can be used to repay the loan and accrued interest.
Refinancing or managing cash flow is another key use for bridging loans. They can help replace existing finance agreements, pay off unexpected tax bills, or purchase raw materials to fulfill large orders. Developers also find bridging loans useful for acquiring land or marketing and selling properties at the end of a development project.
While bridging loans offer flexibility and speed, it’s key to remember they’re intended for short-term use. Repayment, including interest, should occur within 12 months. Having a long-term finance strategy in place is vital. Additionally, be aware of higher interest rates compared to longer-term solutions and potential early repayment charges.
