Why Is Bridging Finance So Expensive?

Today we’re talking about an introduction to the Bridging Market and how perhaps it’s not quite as scary or expensive as you might first think. We’ll also talk about how it can be part of your plan to more rapidly scale your property portfolio when used correctly.

Why might you use a Bridging loan when mortgages are so much less on their headline rate? The main reason for doing so is that it allows you to turnover your investment capital much more quickly in the same period of time.

The common strategy is to buy and refurbish the project with a first finance option (in this case we’ll say mortgage 1) and then after works complete refinance onto the second finance option which for this example, we’ll call mortgage 2. If for a moment we ignore the time scale differences between bridging finance and mortgages, and just consider the costs, rates and fees we start to shine a light on a common oversight when it comes to comparing mortgage 1 to a bridge. Early redemption charges are going to be attached to mortgages and if you’re looking to refinance in this short timescale this fee of a couple of percentage points will turn out to be quite the unexpected fee.

Before you know it, the financial difference starts to become a lot less between the two financing options.

When we consider the cost differences aren’t as large as first thought, the benefit of condensing time becomes the tipping factor when making the decision between a bridge (fast) and a mortgage (slow).

In this video we also go into more detail on a recent example for you where we were able to finance the whole project and turn the project and profit around rapidly.