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Rebridging: The Flexible Refinancing of Bridging Loans
Bridging finance provides a powerful short-term solution to many property purchase needs, offering a flexible side-product to mortgages that give you the power you need to move quickly, seize opportunities, and develop your property investment in the best possible way.
Based on an exit strategy rather than monthly repayments, bridging finance provides breathing room when it is most needed, but what can you do if your planned exit strategy doesn’t come to timely fruition?
Many borrowers worry that they’ll be left with no option but to rush a sale of the property or risk other secured assets. Thankfully, this is not the case.
With Clifton Private Finance on your side, your options for redeveloping your bridging finance are wide and flexible.
Key Takeaways
- Rebridging is the process of refinancing or replacing existing bridging finance.
- Rebridging is used as a solution should your planned exit strategy fail, giving you an alternative option to a forced property sale.
- Rebridging may incur additional fees and interest and should be undertaken only with expert advice.
- Clifton Private Finance can help you by negotiating an extension with your existing lender or developing a separate rebridging solution.
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The Basics of Rebridging
At its core, rebridging is a simple idea. It is the process of renewing the existing bridging finance solution or replacing it with another. Often it can be negotiated with the existing lender, but at other times it is more cost-effective to look to an alternative provider.
Like a remortgage, rebridging offers more than simply a way to extend the term. When looking at a new rebridging solution, it’s prudent to consider the bridging rates and fees to minimise the financial impact of the bridge; however, these considerations are typically secondary, and it is rare to refinance a short-term bridging loan purely to take advantage of an improved rate.
The Importance of a Bridging Finance Exit
The exit strategy is a core part of bridging finance and is key to its power. Rather than the monthly repayments of a traditional loan, such as a mortgage, bridging finance is repaid in a single closing payment, with the full balance comprising the principal and interest due upon reaching an agreed exit point.
This exit is typically formed from one of two strategies:
- Proceeds from the sale of the secured property.
- Replacement long-term financing, such as a mortgage.
When the bridging finance is put in place, the exit strategy forms a central part of the application, with clear planning regarding how the loan will be repaid detailed in full.
In many cases, this will include supporting documentation, such as an agreement in principle (AIP) from a future mortgage lender, or forecast property market valuation based on expected works to be undertaken.
The exit is one of two main factors on which the bridging finance application is structured (the other being the value of the underlying security). Ensuring a strong and reliable exit strategy is an essential component to successful bridging.
However, events are rarely guaranteed. During the bridging term, circumstances may change and lead to a necessary reassessment. Rebridging provides an answer.
Why Exits Fail: The Need for Rebridging
Bridging finance is obtained based on the promise of the future. It is most often used to purchase property, and the ultimate solution of ‘sell the property to repay the bridging’ always exists, lowering the risk for the lender.
However, if selling the property is not the main plan, it can be devastating to feel that you have no choice but to do so. Rebridging provides an alternative solution, representing a saving moment to prevent the forced sale.
The following two stories illustrate how rebridging can step in when plans don’t go as expected.
Example 1: John’s House Sale
John took out bridging finance when his house sale fell through and threatened the property chain he was part of. John had put on an offer for a fantastic home, and used bridging finance to purchase that house and downsize when the prospective buyers of his previous home pulled out.
He put the old house back on the market, expecting to sell it within the 18 months of the bridging finance term.
Unfortunately, the term is soon up, and John is yet to sell his old home. He is comfortably in the new one, and is worried about being forced to sell that as it forms part of the security.
Because John is retired and lacks a regular income beyond his small pension, he is not in a position to get a mortgage and refinance the bridging this way.
John also decides to approach an alternative estate agent to push the sale harder.
The strategy is a success, two months later, John accepts an offer for £407,000 on his house. Even after the fees and legal costs, John is able to clear his bridging finance in full and relax, secure in his home.
Example 2: Evan and Samira’s Mortgage Failure
Evan and Samira used bridging finance to fund an auction purchase a year earlier. The property was in need of modernisation and couldn’t be mortgaged.
The couple obtained £310,000 in bridging finance which they added to their savings to purchase the property and undertake renovations. Their exit strategy was clear - to get the house to a habitable level and secure a mortgage to repay the bridge.
The year has been difficult but ultimately successful, with the property now at a beautiful standard and having been recently valued at £550,000. Sadly, due to Evan’s self-employed status and complex income streams, they have been unable to secure a mortgage.
The deadline on their 12-month bridging finance is close, and they fear they will be forced to put the house on the market.
Evan and Samira approach Clifton Private Finance. Their problem is two-fold: first, they need an extension on the bridging finance; second, they need a suitable mortgage to work as a definite exit strategy.
The existing bridging lender is unwilling to offer an extension.
The whole process goes through smoothly over the next ten weeks. Comfortably within the deadline, the mortgage is approved, the rebridging finance is repaid early, minimising the interest, and Evan and Samira are able to enjoy their beautiful house.
Rebridging Options
Rebridging should be considered an emergency solution that’s come about due to a failure with the original exit plan - it should never be part of the exit strategy. Bridging is designed as a short-term funding solution, and extending it in this way may be expensive.
At Clifton Private Finance, we will work with you to consider the pros and cons of all funding options, helping you evaluate rebridging within a wider overview of possible alternatives.
Rebridging options include:
- Bridging extension - In many cases, a discussion with the existing bridging lender to negotiate extending the terms is sufficient. While bridging finance is designed as a short-term solution, typically with 18-month or shorter terms, lenders do understand that delays occur and are often willing to discuss extensions. This can provide between three and nine months extra breathing room, giving you the space you need to fulfil the original exit plan.
- Part repayment and extension - If a part repayment is possible, clearing the interest and reducing the balance, an extension is easier to negotiate and will result in a less costly plan.
- Existing lender rebridging - If a full new term is required, your original lender may offer a full rebridging plan, offering a new deal that replaces the existing loan and provides a full new term. This may reduce fees and simplify application.
- Existing lender long-term finance - Many bridging finance providers are also mortgage or development finance lenders. They may put forward an alternative financing solution to use as an exit for your bridging, allowing you to exit smoothly while enjoying a continued relationship.
- Full rebridging - A full rebridging solution involves going to an alternative bridging lender and taking out a new loan to completely repay the old one.
The Challenges of Rebridging
It is important to maintain a professional and realistic understanding when considering rebridging as it is never the first choice solution. This means there are several challenges that typically present themselves:
The Need for More Security
Bridging finance is obtained by leveraging assets as security. Rebridging follows exactly the same principle; however, due to the interest generated by the original bridging finance, a rebridging loan likely needs to be greater than the original bridge.
As an illustrative example, consider a bridging loan of £500,000 leveraged against £800,000 of property. At the time of application, up to 65% LTV was offered, comfortably matching the need (65% of £800,000 = £520,000).
However, 18 months on, the balance of the bridging loan that requires rebridging is over £560,000 with the interest and fees added. At the same LTV, the sum available based on the £800,000 security is insufficient to cover the needed amount.
This leads to a need for more asset-based security to secure the loan.
Lower LTV on Offer
With the history of a failed exit, it may be that bridging lenders are unwilling to offer the same LTV as the original loan. In the example above, this could lead to an even greater need for additional securities. For example, if the best new loan was only offered at 60% LTV, to cover the £560,000 needed, property valued at £933,500 would be required as collateral.
Watertight Exit Strategy
The replacement exit strategy should be extremely strong to mitigate the risk. A proposed refinance solution, for example a mortgage, would require a formal AIP, backed up by the financial position to secure the mortgage.
Partnering with Clifton Private Finance means you have the support and backing from finance experts who can help you face these challenges head on.
Together, we can explore the marketplace for the right products, securing a loan of the right size and presenting a redeveloped and clear exit strategy that works for both you and the lender.
Rebridging with Clifton Private Finance
At Clifton Private Finance, we work with the full marketplace of UK lenders for both bridging finance and mortgages to create a comprehensive package of funding that includes both the rapid benefits of bridging and rebridging with the long-term security of a mortgage.
We will work with you on a strong exit strategy that gives you the security and peace of mind you need to bridge confidently.
Our focus is on our clients. Unlike some other brokers, we’re here for an ongoing relationship, remaining alongside for advice and assistance throughout the term.
Should you encounter a problem, let us know and we can help you negotiate early for a smooth solution, making essential rebridging when circumstances change an easy step rather than an anxious panic.
If you need help with your bridging finance, speak to a Clifton Private Finance advisor without delay.
