Bridging loans in Scotland are a type of specialist finance, designed to "bridge" a gap between a financial need and longer term lending solutions.
It can take weeks or months to get lending approval from a traditional lender. In contrast, the rapid availability of bridging makes it an essential tool for developers, investors and businesses facing time-sensitive financial situations with approval in just 24–48 hours and completion within 2–3 weeks.
Bridging in Scotland works similarly to the rest of the UK. However, there are some local nuances. These slight differences stem from the Scottish legal system, regulations, and regional conditions.
FAQ’s ABOUT BRIDGING LOANS IN SCOTLAND
Below are answers to the top five most frequently asked questions:
What are bridging loans used for in Scotland?
Scottish bridging loans are commonly used for buying a property or land, buying at auctions, funding renovation projects, and managing cash flow when transitioning between buying and selling property in Scotland. They are a short term finance option highly favoured by landlords, investors, developers, and businesses looking for quick capital.
How quickly can I get a bridging loan in Scotland?
Depending on the the complexity of your application, funding can normally be completed within 5–21 days. Some well-organised applicants with straightforward cases may even obtain funding sooner, ensuring projects proceed without delay.
What are the main advantages of a bridging loan?
The main advantages include fast approvals, flexible finance for a number of different uses, no early repayment charges and the option to secure against various asset types. It serves as a reliable solution for those needing immediate capital to seize investment opportunities or manage financial gaps.
Is bridging finance right for me?
Bridging can be a good fit if you need quick access to funds for buying a flat or house, a renovation project, or a commercial investment and have a clear exit strategy, such as selling the property being acquired, selling another property or switching to longer term property finance.
What are the interest rates for a bridging loan in Scotland?
Loan interest rates for bridging in Scotland typically range from 0.4% to 1.5% per month, depending on various factors. These include the facility amount, the loan to value (LTV) ratio, the type of property used as collateral, and the applicants credit profile.
KEY FEATURES
• Loan amounts typically range from £25,000 to several million pounds, depending on the asset's value and the lender’s criteria.
• Loans are typically structured over a period of 1 to 24 months. In some cases, there are options to extend. However, extensions may come with additional conditions.
• Loan rates are often slightly higher (due to the short-duration) than traditional mortgages. However, a well-connected broker can find competitive rates for projects with a solid exit route.
• Security: Most bridging loans are secured against property or land, with many lenders accepting multiple properties as collateral for higher loan amounts, which can allow borrowing up to 100% of the purchase price.
CASE STUDIES: REAL-LIFE APPLICATIONS.
Case Study 1
Off Market Purchase
Client Profile: Tom, a new developer client in Edinburgh, Scotland.
Objective: Complete the transaction within a tight timescale.
Property Details: A two-bedroom flat valued at £220,000, acquired for £180,000.
Challenge: Tom had only 2 weeks to complete the transaction, which bank traditional financing couldn't accommodate.
Solution: A bridging facility was set up which covered 100% of the purchase price and was based on the open market value. The client also used an already owned flat as additional collateral.
Outcome: Tom completed the deal on time. After a small renovation, he then remortgaged achieving a £30,000 equity gain.
Key Takeaway: The bridging facility helped speed up the purchase. It also made it easier to switch to a commercial term loan facility for retaining the asset.
Case Study 2
Renovation and Sale for Profit.
Client Profile: Emma and Mark, experienced renovators in Glasgow, Scotland.
Objective: Buy, Renovate and resell an undervalued house.
Property Details: A semi-detached house valued at £400,000, bought for £320,000.
Challenge: They needed quick and reliable funding for the purchase and renovations within a limited timeframe.
Solution: A bridging facility was set up which covered the purchase price and provided extra funds on a monthly drawdown basis for a back to brick refurbishment.
Outcome: The house was refurbished and was sold for £480,000. After repayment of the bridging and development facility, they profited £60,000.
Key Takeaway: Access to flexible bridging funds allowed Emma and Mark to transform this run down semi-detached house and profit from the sale.
Lenders typically offer two main types of unregulated bridging loans:
1. Closed Bridging: It has a set repayment date and is often used when there is a clear way to repay. This can be from a planned property sale or an upcoming standard mortgage approval.
2. Open Bridging: It has no fixed repayment date agreed at the start and is used when the exit strategy is still in the process of being formalised.
There are generally 3 options available.
Monthly : Repaying monthly is an option. However, you must show you can afford it by declaring your income. Like any financial agreement, you also need to keep up with the monthly payments.
Rolled up/deferred : Interest is added to the account on a rolling basis and repaid when the asset is sold or switched to a long term lending solution.
Retained : The is by far the most popular way to repay interest for many borrowers. This method calculates the amount due for the projected term and adds it to the principal amount advanced. If you redeem early, you will receive a credit for any unused interest from your final amount.
WHAT IS AN ACCEPTABLE EXIT STRATEGY
It is important to have a clear exit strategy from the start as this will satisfy the bridging loan lender on your ability to repay within the agreed timescale. Below are some acceptable exit strategies:
1. Selling the property that is being purchased.
2. Selling another property.
3. If you want to retain the property and rent it out, you can repay by seamlessly switching to a longer-term commercial or buy-to-let mortgage.
Another option for repayment is to utilise development exit finance if you're waiting for the sale to finalise or waiting for longer term lending to complete.
POPULAR USES FOR BRIDGING LOANS
Development
A development bridging loan can be used to buy an existing property, and if required carry out a refurbishment program for onward sale or asset retention.
Refurbishment costs can be included in the form of monthly staged drawdowns similar to Development Finance.
Bridging has many uses and is commonly used for buying and selling flats, houses, development projects. land purchase and managing cash flow.
BRRR
Buy Refurbish Refinance Rent also known as BRRR is a strategy that is commonly used by experienced landlords and developers to quickly build a rental portfolio.
It involves using bridging to fund the property purchase, and upon completion of the refurbishment it is then refinanced to a buy to let mortgage.
This strategy allows developers and investors to recycle their initial investment and use it again and again to invest in more flats and houses.
HOW TO APPLY FOR A BRIDGING LOAN IN SCOTLAND
The process of applying in Scotland is straightforward, allowing for quick approval and fund disbursement.
Here's a step-by-step guide to the typical application process:
Application Steps:
1. Initial Inquiry: Start by consulting with a specialist broker who has experience in the residential and commercial bridging market and understands the Scottish property markets. They will assess your needs and provide a tailored quote.
2. Valuation: An independent valuation is carried out. This helps find the true value of the asset being used as security.
3. Approval and Offer: After reviewing your application, the lender provides a formal offer. This offer includes the loan amount, loan rate and repayment terms.
4. Legal Work: Solicitors handle the legal paperwork. They make sure everything follows local laws and the lender's offer.
5. Fund Release: After the legal process is done, the funds are released. This usually happens imminently after final approval.
Speak to a Bridging Loan Expert
Bridging offers an invaluable financial tool for those needing swift, short-term funding. Whether your purchasing and renovating real estate, or bridging temporary financial gaps, understanding the specifics is key to making an informed decision. By assessing your needs, consulting with a financial expert, and choosing a reputable lender, you can harness the advantages to achieve your financial goals.
BRIDGING PLANS PER ASSET TYPE
Residential
- £50,000 to £15 Million
- LTV Up to 85%
- LTV for heavy refurb up to 75%
- Interest rates from 0.50% per month
- Maximum Term 24 Months
- Indicative Terms within 4 hours
Semi-Commercial
- £50,000 to £15 Million
- LTV Up to 75%
- LTV for heavy refurb up to 70%
- Interest rates from 0.60% per month
- Maximum Term 24 Months
- Indicative Terms within 4 hours
Commercial
- £50,000 to £15 Million
- LTV Up to 70%
- LTV for heavy refurb up to 70%
- Interest rates from 0.80% per month
- Maximum Term 24 Months
- Indicative Terms within 4 hours
