Given that bridging finance is more expensive than a mortgage and for a shorter duration, there needs to be a good reason for using it – and there are three main situations where it can be valuable...
The first is in situation where you don’t want to hold the property for very long – or you want to remortgage quickly to realise an increase in value.
For example, say you want to flip a property. You shouldn’t use a mortgage, because a mortgage is intended to be held for a number of years – so cash or bridging are your only options.
Alternatively, you might want to refurbish a house to increase its value then borrow against its higher value. In that situation, bridging is appropriate too: use bridging to increase the value, then take out a mortgage based on its new value.
The second is a situation where speed matters. Because you can arrange bridging in weeks rather than months, it allows you to compete with cash buyers in situations where you can get a good deal by moving quickly. Auctions are one example, but also any case where the seller is willing to sell at a discount if you can complete quicker than a mortgage would allow you to.
The third is where the property isn’t mortgageable. From a mortgage lender’s point of view the property doesn’t need to be a palace, but it needs to be habitable (and therefore rentable) before they’ll lend against it.
That’s a problem if you want to buy a wreck of a property at a good price then bring it back up to scratch. You can’t get a mortgage against the property when it’s a wreck – but you could use bridging instead (as lenders are less fussy), then take out a mortgage to repay the bridging loan once you’ve finished the refurbishment.
Of course, these situations overlap too. Often properties that are in disrepair and are unmortgageable are being sold quickly (sometimes at auction). Often too, you might not want to hold this property for very long – just enough time to refurbish then sell on again for a profit.
There are plenty of other cases where bridging comes in useful – some of them more advanced – but these are the majority of situations when it comes to Bridging.
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