8 Alternatives to Bridging Loans

Bridging finance is a compelling funding solution for solving the challenges of property purchasing and renovation when a traditional mortgage comes up short.

By looking at the range of funding products in the marketplace, we work with you to keep costs low, provide the most flexible terms, and secure the perfect fit for your needs. If you’re looking at bridging finance, it’s worth taking ten minutes out to consider these eight alternatives.

A Quick Overview of Bridging Finance

Bridging finance refers to a short-term funding solution that’s typically secured on property to give you immediate access to the capital you need to:

• Buy a property without waiting for lengthy mortgage approval.
• Buy a property that’s ‘unmortgageable’ due to a need for significant renovation.
• Secure your new home before your current house is sold (breaking the property chain).
• Move rapidly to avoid being gazumped.
• Fund renovations and redevelopment.
• Take advantage of opportunities with a short window.
• Pay for care costs or other needs while waiting for a property sale.

To understand more about bridging finance and how it can help you with your property-buying needs, read our in-depth guide to bridging loans.

Fergus Allen

Head of Bridging

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Alternative #1 - Second-Charge Loans / Homeowner Loans

Second-charge loans, often called second-charge mortgages, homeowner loans, or secured loans, are loans that are guaranteed through using your home as collateral. This security lowers the risk for the lender, enabling you to borrow larger amounts of capital at a lower interest rate and with less pressure on your credit history than with an unsecured loan.

Second-charge loans rarely offer quite the low interest rates that a first-charge mortgage will offer, due to this greater risk, but they are easier to obtain and, unlike a remortgage, don’t affect your primary mortgage at all.

Second-Charge Loan vs. Bridging Finance

Second-charge loans are best used when:

• Renovating existing property.
• Releasing equity for non-property purposes (debt consolidation, large purchase, helping family member, etc.).
• Current primary mortgage rate and term are favourable.

Alternative #2 - Remortgaging

Remortgaging is the process of fully refinancing your existing mortgage. When you remortgage, the old mortgage is repaid in full and the new remortgage takes its place. Remortgaging potentially allows you to:

• Reset your mortgage fixed term.
• Take advantage of new available interest rates.
• Gain a better deal through increased equity (lower LTV) and improved credit status.
• Release equity from the property as available capital.
• Lower your monthly repayments.
• Secure funding for other uses, such as renovations, debt consolidation, and more.
• Switch from a residential mortgage to a buy-to-let for rental purposes.

In the right circumstances, a remortgage is a powerful way to make the most out of the money you have poured into your home, as well as updating your current financial situation.

However, applying for and obtaining a remortgage is a lengthy and complex process that’s similar to your first house purchase. Remortgaging may incur fees, both for arranging the new mortgage and to pay off the old one early, and there are many considerations to account for when evaluating its viability.

Remortgage vs. Bridging Finance

Remortgaging is an excellent option when you have the time available and your property meets the criteria needed - but it’s slow and somewhat inflexible, leaving bridging finance the better choice when speed is essential.

Alternative #3 - Equity Release

While bridging finance can be used to temporarily provide capital based on your equity in your home, it is a short-term financial solution that is typically repaid within 12 months. For long-term equity release during retirement, products such as lifetime mortgages are a much more suitable option.

Lifetime equity release is designed to provide cash today that’s repaid once the property owner moves away or dies. It can release a substantial level of funding that’s perfect for home renovations, debt consolidation, or just to provide comfort during your years of retirement. However, it’s an ill-fit for projects such as investment in an alternative property or renovations with a view to a subsequent sale, for which bridging finance is far more suitable.

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Alternative #4 - Unsecured Personal Loan

Unsecured personal loans represent a quick and easy way to access smaller amounts of capital. With no tie to your property as security, a personal loan has a quick application process with a risk assessment based on your credit history. If you have a comfortable credit score and are only looking to obtain a lower level of funding for renovations, an unsecured personal loan is often a worthwhile option.

Unsecured Personal Loan vs. Bridging Finance

Because a personal loan is not secured against property or any other asset, it typically has a higher interest rate than any other secured loan, including bridging finance. Combined with the low maximum value, this makes personal loans unsuitable for property purchase, though renovations can often be paid for with this simple method.

Alternative #5 - Savings or Family Support

Often people are unwilling to consider dipping into a savings pot when looking to make property investments or renovations, looking to external funding while their hard-earned savings are left untouched and generating interest as a security for the future. Financially, however, this can be a false economy as often the interest paid out in finance is greater that the amount being earned by the savings - it is often far more cost-effective to use your savings and replenish them than it is to have them sit in the background.

An alternative to using savings is to ask for help from family. If you can show a clear exit strategy similar to that for bridging finance, then family members are often willing to share their savings - especially if there’s a bit of a return in it for them.

Combining savings, family support, and other finance options can give you the size of funding you need to see your project through to completion. However, it is important to consider several factors:

• The emotional impact of asking family for support.
• The need to clearly write things down and provide a concrete plan for repayment, often even a formal contract.
• Your commitment to following through with promised repayments.
• A clear plan for what happens if something goes wrong.

It is always best to treat family members who lend you money with the same level of respect and seriousness you would any professional lender, ensuring the agreement is clear from the outset.

Alternative #6 - Development Finance

Development finance shares some similarities with bridging finance, providing large-scale capital for use on building projects based on an exit strategy for repayment. However, development finance has been tailored to suit larger renovation and development projects and uses different calculations to determine the size of the loan. Key differences include:

• Development finance can be provided in staged payments at different checkpoints along the development timeline, minimising the impact of interest.
• Development finance uses Gross Development Value (GDV) to calculate loan size. GDV is the projected value of the property or properties once the entire development project is completed.

Because it is generally used for larger projects, development finance is typically seen as a business funding tool, however, in the right circumstances, it can offer an alternative to bridging finance for smaller independent developers and homeowners considering a sizeable renovation or build project.

Development Finance vs. Bridging Finance

Speaking to a broker is imperative if you are looking to obtain development finance. Discuss your project with our team at Clifton Private Finance today to determine the right path for you.

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Alternative #7 - Portfolio Mortgages

When you manage multiple properties, a portfolio mortgage allows you to combine multiple property-based loans into one single package. This is both easier to administrate, but also provides opportunities that standard mortgages do not offer, creating benefits that can act as an alternative to bridging finance.

Often, bridging finance is sought because of its rapid nature, giving you the power to take advantage of opportunities, such as auction sales, that a standard mortgage might miss. When you have a portfolio mortgage, however, much of the underwriting work is already complete, speeding up the process of obtaining new finance such that bridging is not required.

A portfolio mortgage also provides you with substantial equity, established across the range of properties you own, that can provide the security your lender needs to stretch further with new investments.

Property portfolio mortgages are extremely beneficial for any landlords, both business and individual, who own and manage more than two properties. Speaking to the Clifton Private Finance mortgage team or reading our articles on portfolio mortgages will give you the knowledge you need to determine whether a portfolio mortgage is advantageous to you.

Existing Portfolio Mortgage vs. Bridging Finance

Using a portfolio mortgage to avoid the need for bridging finance is only possible if the portfolio mortgage is in place ahead of time. New applications will have the slow application process, rental yield affordability testing, and complex underwriting that bridging finance neatly sidesteps.

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Alternative #8 - Refurbishment Loans

Rather than being an alternative to bridging finance, refurbishment loans are a subset of bridging finance that are specifically tailored to fit refurbishment projects. When looking to buy a rundown property that requires immediate renovation before it can be sold, let out to tenants, or mortgaged, a refurbishment loan provides the capital needed.

As a specialist bridging finance product, refurbishment loans are a far better fit for this specific need than general bridging finance, often offered by specialist lenders with smoother application processes and competitive rates to get the ball rolling as quickly as possible.

Refurbishment Loan vs. General Bridging Finance

When you are looking at a house flipping project, or taking advantage of the low cost of uninhabitable properties to provide an investment and home owning opportunity, refurbishment loans are a perfect package.

Bridging Finance and Alternatives with Clifton Private Finance

At Clifton Private Finance we understand the full range of finance products. Our experts are trained and experienced in multiple different funding solutions, providing them with the background needed to offer advice on alternatives that means you will be able to choose the right loan type to suit your particular circumstances. Whether you ultimately choose to go with bridging finance or find a different solution for your project, you can be assured the very best rates available from premium UK lenders.

When it comes to choosing property finance for renovation or development, having a specialist on board to help you navigate the funding landscape is essential. By partnering with Clifton Private Finance, you can move forward with confidence, sure of a smooth application process and the finest end result. Contact us today to find out more about how bridging finance and its alternatives can provide the capital you need.

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