While a bridging loan can be used for any legal purpose, some applications are more common than others.
As of 2022, these are six of the most popular uses for bridging loans right now (in no particular order):
1. Buying a home before selling your current home
More households than ever before are using bridging loans to opt out of conventional property chains. Rather than waiting for the sale to close on their current home (and running the risk of a broken property chain), they buy their next home outright with bridging finance. After which, their previous home sells at a later date, the bridging loan is repaid in full, and the transaction is complete.
2. Buying properties at auction
Bridging finance can also be just the thing for meeting the requirements that apply when purchasing properties at auction. If your bid is successful, you will usually have no longer than 28 days to come up with full payment for the property. Such a short timescale renders conventional mortgages out of the question, whereas a bridging loan can be arranged within a few working days. Bridging finance for auction property purchases is a popular choice among commercial investors and everyday home buyers alike.
3. Renovating before selling
Strategic renovations and home improvements before selling can significantly boost a property’s market value. Bridging finance can be used to fund this pre-sale project, ensuring the home sells for its best possible price to maximise the subsequent profits. The bridging loan is then repaid when the home is sold, and the remaining profits are pocketed by the seller.
4. Purchasing an unmortgageable property
Most major banks and High Street lenders are unwilling to issue mortgages for the purchase of uninhabitable homes, or properties in a questionable state of repair. Elsewhere, specialist lenders are more flexible when it comes to these ‘unmortgageable’ properties, which can be purchased with bridging finance. A bridging loan can be taken out against almost any type of property, commercial or residential, irrespective of its condition at the time.
5. Preventing repossession
Faced with the prospect of repossession, bridging finance can be used to take control of the sale of your property yourself. Rather than allowing your mortgage provider to repossess and sell your home, you can take out a bridging loan to pay off your mortgage and retain ownership of your property. After which, you can oversee its sale on the conventional property market in the normal way, ensuring you get the best possible price for it and using the funds raised to repay the bridging facility.
6. Covering unexpected tax bills
Businesses and self-employed workers often find themselves facing unexpected tax demands at the worst possible time. Available at short notice, bridging finance can be used to cover these outgoings, as an alternative to heavy penalties and the threat of potential legal action. The loan can then be repaid several weeks or months later when the borrower’s finances are back in order.