Bridging finance in Northern Ireland: how it works and when it makes sense

Sometimes a property purchase can’t wait for a normal mortgage. You’ve found your next home but haven’t sold your current one, you’ve won a property at auction with a few weeks to complete, or you’ve found a house that needs too much work for a standard lender. That’s where bridging finance comes in.

This guide explains how bridging works in Northern Ireland, what it costs, and the questions to ask before you take one out.

What is bridging finance?

A bridging loan is short-term borrowing secured on property. It’s designed to “bridge” a gap, usually for a few months and typically no longer than 12 to 18 months. At the end of the term the loan is repaid in one go, normally by selling a property or by moving onto a standard mortgage.

Because it’s short-term and arranged quickly, bridging costs more than a normal mortgage. It’s a tool for a specific job, not a long-term way to borrow.

When do people use bridging in Northern Ireland?

• Buying before you sell. You’ve found the right home and don’t want to lose it while your current house is on the market.
• Auction purchases. Auction buyers usually have to complete within a few weeks, which is often too quick for a standard mortgage.
• Properties that need work. Many mainstream lenders won’t lend on a property without a working kitchen or bathroom, or one that needs major repairs. Bridging can fund the purchase, and sometimes the works, until the property can be mortgaged normally.
• A broken chain. If your buyer pulls out late on, bridging can sometimes keep your purchase on track while you find a new buyer.
• Landlords and developers. Investors use bridging to buy and refurbish property before refinancing onto a buy-to-let mortgage or selling.

Regulated or unregulated: what’s the difference?

Some bridging loans are regulated by the Financial Conduct Authority (FCA) and some aren’t, and it matters.

A bridging loan secured on a home that you or a close family member live in, or will live in, is usually regulated. That brings FCA protections, such as rules on how the loan is advised on and sold, and access to the Financial Ombudsman Service if something goes wrong.

A bridging loan for an investment property, a development or another business purpose is usually unregulated, so fewer of those protections apply. We’ll always tell you which applies to your loan before you go ahead.

What does bridging cost?

Bridging interest is usually charged monthly rather than annually, and it can be paid in different ways:

• Serviced: you pay the interest each month, like a normal loan.
• Rolled up: the interest is added to the loan and repaid at the end.
• Retained: the interest for the agreed term is set aside from the loan at the start.

On top of the interest there are usually fees, which can include an arrangement fee, a valuation fee, legal fees for both you and the lender, and sometimes an exit fee. It’s important to compare the total cost over the time you expect to need the loan, not just the interest rate. We’ll set all of this out for you in writing.

Your exit plan is the most important part

Every bridging lender will ask how you plan to repay the loan. This is called your exit strategy, and it needs to be realistic. The two most common exits are:

• Selling a property, either the one you’re moving from or the one you’ve bought and refurbished.
• Refinancing onto a standard residential or buy-to-let mortgage once the property qualifies.

If you’re refinancing, it’s worth checking early that you’ll qualify for the mortgage you’re counting on. We can look at both the bridging loan and the long-term mortgage together, so the plan joins up.

Things to watch out for

• Delays cost money. Because interest is charged monthly, a sale that takes longer than planned makes the loan more expensive. Build in some breathing room.
• Extending can be expensive. If you can’t repay at the end of the term, extending the loan or going overdue can mean extra fees and higher interest.
• Valuations can come in lower. The amount you can borrow depends on the lender’s valuation, not the price you’ve agreed.
• Not every lender lends in Northern Ireland. Some UK bridging lenders don’t lend on Northern Ireland property, and legal work here works a little differently, so it helps to use an adviser who knows the local market.

Is bridging right for you?

Bridging can be the right answer when timing really matters and the exit is clear. But it isn’t always the best option. Depending on your situation, it could be better to wait until your sale is agreed, to raise money through a remortgage, or to look at a standard moving home mortgage. A good adviser should talk you through the alternatives as well as the bridging loan itself.

How McDowell can help

We’re a Northern Ireland based mortgage broker with over 30 years’ experience. We’ll look at your plans, explain the costs and risks in plain English, and find lenders who lend on Northern Ireland property. If bridging isn’t the right fit, we’ll tell you. You can find out more on our bridging loans page, or book a free call below.

Bridging loans are secured against property. Your property may be repossessed if you do not keep up repayments. Some bridging loans are not regulated by the Financial Conduct Authority.

This article is general information only and isn't personal advice. Mortgage and protection products depend on your circumstances, so please speak to one of our advisers before making a decision.