One way of funding a conversion project is to use a bridging loan. This is an amount of money you borrow for a short period of time (hence the name ie it ‘bridges’ the gap between your finances).
A bridging loan is often used by couples who have bought a new house, but the sale of their old one has fallen through and they’re paying two mortgages instead of one. For a conversion project though, a bridging loan will be a much higher amount of money.
The length of time a bridging loan is taken for can range from six months up to a year. Financially, it’s too expensive to take out a bridging loan for longer than this, since it’s such a high level of monthly interest.
There are two main types of bridging loans – ‘open’ and ‘closed.’
‘Open’ Bridging Finance
An open bridging loan is when there is no fixed date for the loan to be repaid by, but most lenders expect to be repaid within the year, and no longer than two years. It’s this flexibility that makes open bridging loans so much more expensive than closed bridging finance.
They will also want to see how you plan on repaying it ie from the profit of a house sale or re-mortgaging ie what your exit route is. In fact, you will have to hand over a detailed plan, complete with plan B, in case the first repayment plan falls through.
‘Closed’ Bridging Finance
As you would imagine, a closed bridging loan is when there is a set date that the loan must be repaid back by. This is usually quite a short period of time, such as three or up to six months.
Bridging Loans Require Security
A bridging loan is what is known as a ‘secured loan.’ What this mean is that the loan is ‘secured’ against an asset, such as your home, another property or land etc. This means that should you be unable to pay back the loan, the lender can access the physical asset the loan is secured against to try and recoup the cash.
Amount you can Borrow When ‘Bridging’
Bridging loans are available from £5,000 to £10,000,000. It really depends on how much the property you are using as security is worth. The value of your property will also affect the interest rate of the loan.
How long Does a Bridging loan Application Take?
A bridging loan application itself doesn’t take long to get an answer for. When you apply online it’s usually within 24 hours. What does take longer though, is the length of time you have to wait to get the money in your bank account – up to a fortnight. That’s because a surveyor has to be sent out to value the property you are using as security.
At the same time, the lender will want to carry out checks on you to reassure themselves that you are legitimate and are in a likely position to be able to repay the loan. The money will then have to be transferred.
Access a Bespoke Sourced Funding Plan
Our Sourced peer to peer funding platform allows you to access up to 100% of the money you need to complete your project, when secured against property. This can be achieved because Sourced can lend you up to 70% of the GDV of your project.
But more than that, our team can also help with advice, support and expertise. We’ve ‘been there, done that’, so can always offer the voice of experience should you be unsure which way to turn or whether or not a deal appears to be too good to be true.
Find out more by downloading our Sourced Networking prospectus today.
