A spokesman comments: "For example, a plot of land has been placed for sale and you would like to build on the land for either investment or personal use.
"A bridging loan can be used to purchase the land which will allow your own funds to be used for the build costs, once the project most people look to sell or mortgage the property in order to pay back the original bridging loan."
4) Lease extensions
One homeowner, Ms K, needed to take out bridging finance for a very short-term - three weeks, in fact. The sale of her flat was dependent on her being able to extend the lease, and this was an additional outlay she could not afford at the time - especially as she was getting married the next month.
Fearful the buyer may pull out, the homeowner took out a short-term bridging loan to cover the £12,000 cost of the lease extension and get the property chain moving quickly. When the sale proceeds came in, she repaid the bridging loan.
5) Property development
Clients may want to buy and develop an uninhabitable property, either for themselves or for a buy-to-let portfolio. They can get and satisfy a loan with a bridging lender, before remortgaging to a mainstream lender.
6) Renovations
Bridging loans can also help those who are renovating or developing a current property, although in this situation, they will have to get planning permission.
Again, this list is not exhaustive - there are many other reasons where a bridging loan might be feasible for a client, where traditional mortgage finance might not be given.
What is a second charge bridging loan?
Some borrowers can get what is called a second charge bridging loan. To understand what this is, one must know the difference between first and second charge loans.
First charge loans on a property are usually a residential mortgage.
Second or subsequent charge loans on the property can be used for capital-raising purposes, instead of the borrower having to repay the original first-charge mortgage with a new, potentially more expensive, one, or even incur an early redemption charge (ERC).
The terms 'first charge' and 'second charge' in this context refers to the priority given to lenders in the event that more than one loan is secured against a property.
The lender who has first charge will be given initial priority over the property should the borrower default on the loan.
After the first charge loan is paid off, the remaining equity (if there is any) is assigned to lenders with second and subsequent charges.
