In the UK property market, timing is everything.
Whether you’re a homeowner facing a broken chain, an investor spotting a bargain at auction, or a developer looking to transform a property, you may need fast access to funds.
Bridging loans offer a speedy solution, providing a short-term financial bridge between buying and selling or securing longer-term finance.
These flexible loans can be tailored to various situations, making them an attractive option for those who need quick access to capital. But what exactly what types of property are they secured against?
This guide will break down everything you need to know about bridging loan security.
We’ll explore the wide range of properties and assets that can be used as collateral, the legal charges involved, and why getting expert advice from a mortgage broker is essential for a smooth and successful experience.
Understanding Bridging Loans
Bridging loans have grown to be a convenient option for those seeking swift access to capital.
But what exactly are they?
In essence, a bridging loan is a short-term secured loan or mortgage, designed to “bridge” the gap between buying a new property and selling an existing one or securing longer-term financing.
These temporary loans are typically used in specific scenarios where speed and flexibility are paramount.
For instance, if you’re caught in a broken property chain, a bridging loan can help you secure your dream home before your current property sells. Similarly, if you’ve won a property at auction, a bridging loan can provide the funds needed to meet the tight auction deadline.
The mechanics of a bridging loan are relatively straightforward.
You apply through a specialist lender or broker, who will assess your application based on the value of the property or asset you’re using as security and your exit strategy.
If approved, the funds are released quickly, often within a matter of weeks. Full repayment is typically expected within 12 months, either through the sale of the property or by refinancing onto a longer-term mortgage from another lender.
Most people associate bridging finance being used when a property chain breaks down. The loan will help you to move, even though your home sale has yet to be completed.
But in fact bridge finance can be used for any purpose that you might need money for.
What Can a Bridging Loan Be Secured Against?
Bridging loans offer surprising flexibility when it comes to the assets you can use as security.
While the most common form of security is property, the types of property accepted can vary widely.
Residential Properties
The most common type of security for a bridging loan is residential property.
This includes standard houses (detached, semi-detached, terraced), flats, new builds, and even period properties. Lenders will assess the property’s location, condition, and estimated market value to determine the loan amount and interest rate. Properties in desirable areas, in good condition, and with a high market value will typically secure more favourable terms.
Commercial Properties
Bridging loans can also be secured against commercial properties, such as office buildings, retail units, warehouses, factories, and mixed-use developments.
The location of the property, the quality of existing tenants (if applicable), and the overall condition of the building are key factors that lenders consider.
Semi-Commercial Properties
Properties that combine commercial and residential elements, like shops with flats above, pubs with living accommodation, or guest houses, are also often accepted as security. These properties can be appealing to lenders due to their versatility and potential for multiple income streams.
Land
Land with planning permission, particularly for residential or commercial development, is a valuable asset that can be used to secure a bridging loan.
The type of planning permission (outline or detailed) and the potential value of the development will influence the loan terms. Agricultural land, brownfield sites, and even greenbelt land (with stricter criteria) can also be considered.
Unusual or Non-Standard Properties
One of the advantages of bridging loans is the flexibility lenders offer regarding property types.
Properties that might be considered “unmortgageable” by traditional lenders, such as those with concrete or timber-framed construction, thatched roofs, listed status, or unique eco-friendly designs, can often be used as security for a bridging loan.
Unusual or unique buildings are also acceptable, these could include; barn conversions, converted churches, lighthouses, windmills etc.
Additionally, bridging can help with uninhabitable properties. For example, houses without a kitchen, bathroom or roof!
Development Projects
Bridging loans are frequently used to finance property development projects.
This can include partially completed buildings, properties undergoing renovation, or conversion projects (e.g., converting a commercial property into residential units). Lenders will assess the project’s viability, the developer’s experience, and the potential value of the completed development. A clear development plan and exit strategy will be needed in these scenarios.
Read more: What is the difference between bridging and development finance?
Property Valuation
The lenders in this market are well known for their ability to ‘accept any style of property’. While this maybe true, how well any deal works is down to the valuation given by the surveyor.
Yes, they will lend on a house without a bathroom or a roof. No mortgage lender would entertain this.
But the valuation, on which your LTV is based, will be a fraction of the market value of a habitable building.
That said, these assets are still able to be used as security, even if they are in a run-down condition.
Important Note:
It’s important to remember that each lender has its own specific criteria and risk appetite. The type of property you’re using as security, its location, condition, and your overall financial situation will all influence the terms of your bridging loan.
First and Second Charge Bridging Loans
When you take out a bridging loan, it’s essential to understand the concept of legal charges.
A legal charge is an interest that a lender places on a property and it’s formally noted at the Land Registry. It gives the lender the right to repossess and sell the property if you fail to repay the loan.
There are two main types of bridging loan charges:
First Charge Bridging Loan
This is the primary loan secured against a property. If you already own the property outright, the new bridging loan will be a first charge. In the event of default, the first charge lender gets priority in recovering their money from the sale of the property.
The mortgage that you use to buy your own home will use a first charge.
Second Charge Bridging Loan
If you already have a main mortgage or another loan secured against the property, the bridging loan will be a second charge. This means the existing loan gets priority, and the bridging loan lender is second in line to be repaid in the event of default.
Key Differences:
| Feature | First Charge Bridging Loan | Second Charge Bridging Loan |
|---|---|---|
| Priority | First | Second |
| Interest Rates | Typically lower | Typically higher |
| Loan-to-Value (LTV) | Often higher | Often lower |
| Availability | More readily available | Less common |
| Lender’s Consent | Not needed | Always required |
Why it Matters:
Understanding the difference between first and second charges will help you to understand how your loan could work.
It affects the interest rate you’ll pay, the amount you can borrow (LTV), and the overall risk for the lender. If you’re considering a second charge bridging loan, remember that you’ll need to obtain consent from your existing mortgage lender before the bridge loan can be completed and paid out.
There are some first charge lenders that won’t give this approval, speak to us for further guidance.
Regulated vs. Unregulated – What You Need to Know
Not all bridging loans are regulated, with the associated consumer protection and ombudsman service that comes with it.
The key difference lies in whether or not the loan falls under the supervision of the Financial Conduct Authority (FCA), the UK’s financial watchdog.
And this will depend on what the property is and how it will be used.
Regulated Bridging Loans
These loans are designed for individuals who are borrowing against their own home, or a residential property they intend to live in.
They offer greater consumer protection, as they’re subject to FCA regulations. This means lenders must adhere to stricter guidelines, ensuring fair treatment of borrowers and transparent terms.
A regulated bridging loan can be either a 1st charge loan or a 2nd charge loan and the maximum term is normally 12 months.
Unregulated Bridging Loans
These loans are used by property investors, developers, or companies.
They aren’t subject to the same level of FCA oversight as regulated loans, offering lenders more flexibility but also potentially carrying more risk for borrowers.
Unsurprisingly unregulated loans are ones that are not connected to your main residence.
This could be:
- Purchase of an auction investment property
- Buying a new property before the sale of another property
- Financing refurbishment or conversion works
- Fund a new business
- Buying some land
- Buying a commercial property
All bridging loans are for relatively short periods; 3 months to 36 months. So whether they are regulated or unregulated you need to be clear about your exit strategy.
Which Type of Bridging Loan is Right for You?
The type of bridging loan you need will depend on your circumstances and the purpose of the loan.
If you’re a homeowner looking to bridge the gap between buying and selling your home, a regulated bridging loan might be the best option due to the added consumer protection. However, if you’re an investor or developer looking to finance a project, an unregulated bridging loan might offer the flexibility you need.
You should know that you cannot ‘choose’ for a loan to be regulated or unregulated. It is the circumstances themselves that will dictate this.
There are quite a few providers of bridging finance that can only offer unregulated loans.
Why Use a Mortgage Broker?
The area of bridging finance is a complex one, with numerous lenders and varying criteria.
A specialist mortgage broker such as ourselves can:
Assess your individual needs: They will take the time to understand your unique situation, financial circumstances, and property goals to determine if a bridging loan is the right solution for you.
Match you with the right lender: Brokers have access to a vast network of banks and specialist lenders, including those not available to the general public. They can connect you with lenders who are more likely to approve your loan and offer competitive terms.
Negotiate better terms: With their experience and industry connections, brokers can negotiate on your behalf, potentially securing lower interest rates, reduced fees, or more favourable terms than you could obtain independently.
Simplify the application process: They handle all the paperwork, communicate with lenders, and ensure your application is presented in the best possible way, saving you time and stress.
Provide ongoing support: Brokers offer guidance throughout the loan term, helping you manage your repayments and plan your exit strategy effectively.
Help you choose the right loan type: They can explain the different types of bridging loans available, including open bridging loans (flexible repayment), closed bridging loans (fixed repayment date), term bridging loans (fixed interest rate), and development bridging loans (for property development projects).
Read more: Why use a bridging finance broker?
Bridging loans offer a flexible and fast solution for those needing quick access to funds.
They can be secured against a wide range of assets, from standard residential properties to commercial buildings, land, and even unique or “unmortgageable” properties.
However, the world of bridging finance can be complex.
With varying lender criteria and a multitude of loan options, so it’s essential to seek expert advice.
If you’re considering a bridging loan, don’t hesitate to call us. Our expert brokers are experienced in arranging short-term finance for any amount and for any purpose.
Call 020 8301 7930 to get started.
Frequently Asked Questions
Bridging loans are known for their speed. In many cases, you can receive the funds within a few weeks of your application being approved.
The maximum LTV typically ranges from 75% to 80% of the property value, although some lenders may offer higher LTVs depending on the circumstances.
While a good credit history is beneficial, bridging lenders are more interested in the property and your exit strategy.
Yes, bridging loans are frequently used to finance auction purchases, as they offer the quick access to funds needed to meet completion deadlines. Run-down and uninhabitable properties are all considered.
Yes, bridging loans can be used to purchase buy-to-let properties, either before they’re ready to be tenanted or as a way to quickly secure a deal before refinancing onto a buy-to-let mortgage.
Yes, a solicitor is required to handle the legal aspects of the loan and ensure the process runs smoothly.
Most lenders allow early repayment, but you may be charged a fee.
Yes, you can get a second charge bridging loan if you already have a mortgage or loan on the property. This loan will be behind the first charge in priority.
This depends on whether the loan is regulated or unregulated. But affordability is less important as bridging finance does not require any monthly payments. The loan needs to be repaid, along with the interest, by the end of the agreed term.