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Your Bridging Loan Exit Strategy
Designed as a powerful short-term form of finance for property purchases and renovations, bridging finance is an excellent way to get significant funding quickly and efficiently - but it relies on a well-developed exit strategy. At Clifton Private Finance, we can help you manage that bridging loan exit strategy with a full low-cost mortgage for the long-term.
Understanding bridging finance exit strategies is essential before you move forward.
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What is the Bridging Finance Exit Strategy?
Bridging finance is short-term finance that is put in place based on two key factors:
One of the reasons bridging finance is so rapid and so flexible, is that it can be put in place based on these two considerations alone - no major focus on your credit history, or long-winded affordability stress testing. For a lender, bridging finance boils down to ‘do you have the security needed to guarantee the loan, and is there a proper plan in place to repay it?’
Your exit strategy for bridging finance is absolutely key to getting your funding.
Exit strategies come in two forms:
At Clifton Private Finance, we’re experts in the first type, perfect for people looking to use bridging finance to buy a property to live in, or as a long-term rental investment.
The Bridging Finance Process
Why use bridging finance? It has many advantages over more traditional forms of funding if you are looking to seize opportunities. It is far quicker to put in place than a mortgage (measured in days rather than weeks or months) and can be obtained when your plans for long-term financial stability are yet to be put in place, for example, when moving for a job in a new city - you can use bridging finance to buy your new home immediately, before your new role and salary are proven and established for mortgage lenders.
The process for bridging finance is:
- The initial idea for your bridging finance - calculate the size of loan you need and sketch out your exit plan.
- Speak to Clifton Private Finance - our bridging finance team will work with you to get the capital you need and put in the plans for your funded exit.
- Obtain bridging finance - often as quickly as 7-10 days.
- Purchase new property - with bridging finance you have all the advantages of a cash buyer.
- Set up exit strategy finance - Our mortgage team at Clifton Private Finance will move forward to secure you the mortgage you need to pay off the bridging.
- Exit bridging finance - When the mortgage is in place a few weeks or months later, repay the bridging finance in full.
To learn more about bridging finance, its uses, and how it works, read our in-depth Guide to Bridging Loans.
A Funding Bridging Exit - Remortgages For Long-Term Property Ownership
At Clifton Private Finance, we work with many clients who are keen to retain the property for long-term ownership - typically as either a residential property or set up as a buy-to-let rental. We are specialised in developing solid exit strategies based on long-term financing - putting a mortgage in place to repay the bridging loan and move from the short-term rapid finance of bridging to a low-cost, monthly repayment structure.
Bridging Finance to Mortgage for an Auction Property
Bridging finance is a key tool when looking to buy property at auction. Auction houses usually have a 28-day completion deadline, at which point the full property price must be paid. Many buyers fully intend to use a mortgage to pay for the property in the long term, but the full underwriting and processing time for a mortgage can rarely be completed in the four-week window.
While some lenders do try to move quick enough to make an auction mortgage possible, for most buyers, the increased complication and risk makes bridging finance a perfect solution to provide the capital needed while the mortgage paperwork is put through.
Clifton Private Finance are here to help. With specialist teams in both bridging finance and mortgages, we can get the speedy solution you need to seize the opportunity buying at auction presents, while limiting costs and ensuring a stable future.
Auction Property Example
Bridging Finance to Mortgage to Break a Chain
Bridging finance puts you in the comfortable position of being a cash buyer, able to move and purchase your new property before your current home has sold. This has several advantages, including:
- Improved bargaining power - Cash buyers are often able to negotiate discounts in return for an immediate purchase.
- Greater profits - Without the pressure to take the first offer that you get on your house sale, the bridging finance means you can hold out for a better offer at market value or above.
- Breaking the chain - If your buyers drop out beneath you, you risk losing the new home you have put an offer on. Bridging finance breaks you from the chain and enables you to move independently to your current property sale.
With a mortgage already potentially in progress, bridging finance provides a short term solution with a confirmed mortgage-based exit strategy.
Bridging Finance to Mortgage for Repatriation
Coming back to the country after a time abroad can present difficulties. Credit histories show substantial gaps, and affordability tests may fail. If you are moving back and also taking on new job position, the security of six months in the role, which many banks will require for a mortgage, will also be missing.
Many expats repatriating to the UK are forced to waste time and money renting, adding disruption and complication to an already challenging time. Only when you have built up comfortable UK credit records and a stable working history, can you approach mainstream lenders for a mortgage.
Bridging finance with a mortgage exit strategy provides an answer, offering the capital with different lending conditions to a mortgage. Once the required time in the UK has passed, the bridging can be repaid with a traditional mortgage. No worries about lending, and no missed opportunities.
Repatriation Example
Bridging Finance to Mortgage for Renovation
Mortgage lenders have strict regulations for loan approvals that include an essential assessment of property habitability. Major renovations, such as the need for a full bathroom replacement, or kitchen modernisation, can lock you out of a mortgage and make buying a project home impossible.
Bridging finance has no such limitation, able to provide both the capital for the property purchase, and additional funds to pay for the renovation work. Once the construction is complete, the property becomes mortgage-viable, and a long-term loan can be put in place to exit the bridge.
Bridging Finance to Mortgage for Rental Investment
Using a mortgage for an exit strategy is not limited to residential buyers. Investors looking to obtain a buy-to-let property as a landlord can use bridging finance in a similar fashion to those looking to live in the property. Additionally, bridging finance used to purchase a rental is more flexible than those for buying residential property, with a wider range of lenders and product options.
Many potential landlords look to snap up bargains, looking at run-down properties purchased at auction that need additional renovation work. Bridging finance with an exit strategy of a buy-to-let mortgage is a strong strategy for maximising profits and return on investment with these exciting opportunities.
Risks with Bridging Finance Refinance Exit Strategies
Lenders require bridging finance exit strategies to be as solid as possible before the finance will be provided, but it is possible for a mortgage-based exit to suffer difficulties at a late stage. This includes:
Bridging finance with a speculative mortgage exit
In most cases, the lender will want to see that the mortgage provider has agreed in principle to the mortgage before approving the bridging finance, however, this may not be possible in some timeframes, leading to a more speculative exit.
Examples include:
- ‘I’ll renovate this property so it becomes mortgage viable and exit with a mortgage’ - Here, an agreement in principle may be impossible until the work is completed (or at least, underway).
- ‘My finances are on the up, and in six months I can get a mortgage’ - Perhaps a loan has six months of payments remaining, and once it is paid off, stringent affordability tests will be passed; or a pay rise has been promised that will lead to a higher mortgage ceiling.
Circumstance changes
Even with an agreement in principle (AIP) in place, a successful mortgage application isn’t guaranteed. Changes in your circumstances can mean the final mortgage is rejected:
- A relationship breaks down (in joint mortgage applications)
- Job losses
- Injury or illness
Financial changes
A change in the overall financial position can mean the intended mortgage no longer covers the cost of the bridging loan and is no longer enough to exit:
- A drop in property value
- Delays leading to larger than expected interest
- Cost of renovation going beyond budget
- National economic changes
In all these cases, the bridging finance lender would expect a move to the secondary exit strategy - that of selling the property to repay the loan. However, other alternatives are open to you.
Solving The Problems
At Clifton Private Finance, we are fully aware of the risks inherent in a mortgage-based bridging exit and are here to help you should something happen that leads to a break down of your prepared exit strategy. This includes:
- Finding alternative lenders - As a whole-of-market broker, we have access to the wide range of mortgage lenders in the UK. Should there be a problem with your expected lender, we can work quickly to secure an alternative mortgage provider.
- Securing bridging refinance (rebridging) - Rebridging is the process of obtaining a new bridging loan from an alternative lender to repay the first bridging loan and provide more time to secure a suitable alternative. This can be particularly effective when the end of your bridging term approaches and the long-term finance exit is not yet in place.
- Negotiating - Our established relationships with the bridging lenders may enable us to act on your behalf, negotiating your position to reach a short-term solution and obtain the extra time needed to put the planned mortgage in place.
Alternative Bridging Finance Exits
A mortgage is not the only exit strategy that can be used to repay your bridging finance. Other options include:
- Sale of the primary property - The most basic exit strategy is to sell the property that secures the bridging finance and make a repayment. As the default option for bridging finance, a sale should always cover the loan balance and enable a clean exit.
- Rebridging - As mentioned above, a second bridging loan to repay the first, known as rebridging, can provide a second 12-18 month term if needed.
- Secondary property mortgage - If you own additional property, this can be used to secure either short-term (bridging) or long-term (mortgage) loans as an exit to the initial bridging loan.
- Cash exit - Cash obtained by other means can be used to clear the bridging finance. This includes:
- Sale of secondary property - For example, selling your old home as an exit to bridge into a new home.
- Savings and investments - Liquidating investments and using other savings is a viable exit.
- Inheritance - Bridging finance can be secured on an incoming inheritance, perhaps from an estate currently in probate, or from a relative in the last months of life.
- Pension drawdown - Leveraging your pension to secure bridging finance is possible in some cases.
Mortgage-Based Bridging Finance with Clifton Private Finance
If you’re looking to buy a property through bridging into a mortgage, speak to a specialist advisor at Clifton Private Finance. We have the expertise you need to be sure of a smooth process, with access to the lowest rates and most flexible loan terms on the market. Our bridging finance and mortgage teams work together to create a comprehensive strategy for your funding requirements, evaluating both the initial bridge and the mortgage for exit to make sure everything happens without a hitch.
Contact us to speak to a Clifton Private Finance advisor today.
