bridging loan
June 15, 2023

If you need expert financial solutions for commercial property development, renovation, or purchase, bridging loans in Ireland may help. It ensures fast finance with the flexibility to pay comfortably. Bridging finance is one of the most misunderstood products in the market. It is the reason many individuals and businesses incur a loss of credit and finance.

Once you know how they operate and their purposes, you may benefit from them. According to recent stats, “bridging loans are set to be one of the high demand products due to rise in property prices, shifting stamp duty and interest rates.” The new law for buy-to-let buyers may increase the usage.

What do bridging loans imply?

Bridging loans provide instant finance to property investors, real estate developers, and landlords to complete the property purchase or development. It helps them “Bridge” the loan amount without depending on the available capital. One can use it to buy property in the auction, refurbish the existing property or buy a new one before selling the existing one.  

Businesses rely on these loans due to swift fund disbursal. Unlike secured mortgages, one can get these loans within 72 hours of the application. It eliminates any detailed documentation and processing.  These are secured loans secured against the property you own.

There is no upper cap on the amount to borrow. It eliminates stringent mortgage requirements and eligibility to qualify for a specific amount. It is ideal for commercial builders and real estate developers seeking funds on inhabitable properties than a standard mortgage would legally allow.

Example of how bridging finance work

If you are confused regarding how bridging finance works in Ireland, the below example may help you get an idea:

  • You want to buy a property worth – €4,50,000 within 28 days, but you have only €2,80,000 currently.
  • Your business growth is slow; thus, you cannot expect a massive return within the period.
  • You need an additional amount of €1,70,000 to close the deal quickly.
  • So, you take a bridging loan of €1,70,000 by staking a property to finance the deal quickly and buy the property outright.
  • Once you get the finance, you can refurbish and sell the property. You can use the money you got from the sale to pay instalments.

Unlike standard mortgage loans in Ireland, with a repayment period of up to 25 years, one pays bridging loans within a year of the agreement. However, the interest rates are higher on bridging loans than standard mortgages.

Do Bridging loans exist in Ireland’s marketplace now?

Yes, bridging loans have been there in Ireland for quite some time now. On average, one can get 70% on the first charge mortgage on bridging finance here.  It implies that interested borrowers should pay 25% of the property price as a deposit as an initial agreement. While to qualify, a lender demands an exit strategy and security in the form of collateral on the loan.

To talk about an exit strategy that works differently on closed and open bridging loans: These are popular types of bridging finance one can opt for.

1)     Open bridging loans

It is a bridging loan where there is no set date of repayment. The borrower here cannot provide a defined date to pay the loan. He repays the complete amount with interest charges on a particular date. The borrower lacks a plan for the duration to renovate and sell the property.

  • Closed bridging loan

It is a bridging loan where the borrower agrees to pay the amount and the interest rates on a certain date. The borrower usually has a plan and is on the verge of selling the property to clear the dues.

What can you use a bridging loan for apart from property development?

The primary regulator of Bridging loans, the Central Bank of Ireland, provides the flexibility to use the bridging loans for purposes other than renovation. You can use it for aspects like:

a)     Cover up startup costs

If you are unable to raise funds or lack the capital to cover critical business needs, you can use bridging finance to finance a part payment. In Ireland, it is not uncommon to do so.

  • Downsizing or upsizing foreign property purchase

Many individuals in Ireland wish to improve or expand their foreign property purchases. If you have a commercial property that you want to buy outright, a bridging loan help. You can use it to renovate the property you own or reduce the unnecessary area it covers.

c)      Inheritance or tax probate issues

Inheritance requires many legal proceedings like- paying pending bills, hiring a solicitor, paying release charges on the property, paying the share of beneficiaries, other charges, and the bills imposed by the authority. If the money required exceeds the requirement, bridging loans may help you clear the dues quickly.

d)     Release the equity and buy property

If you own a property but want to buy one, you can release the equity you own and purchase the new one using a bridging loan. The best part is you do not have to be a full-time resident of Ireland to accomplish this. The lender may approve of the bridging finance. You can use it for domestic and international property purchases or renovations. If you have a detailed exit strategy, you may get the flexibility to use the funds.

e)     Landlords can expand properties by owning them

It is one of the common uses of bridging loans in Ireland.  Quick finance without any detailed documentation or screenings allows one to capitalise on the opportunity without just depending on rental payments. No, you no more need to depend on rent to live your dreams. Bridging finance can help you timely.

How much does a Bridging loan cost in Ireland?

The costs you pay on a bridging loan depend on several factors:

  • The current value of the property
  • Condition of the property
  • Credit score
  • Location of the property
  • Interest rates
  • Loan to Value ratio- The future value of the property to the current rate
  • Arrangement fees
  • Redemption fee
  • Facility fee
  • Valuation fee
  • Exit fee

There are ample parameters that may define the exact cost of the loan.  Though they are known as short-term loans lasting for a year, if you choose an open bridging loan, you may choose a flexible term for up to 5 years.

Thus, it may vary from lender to lender. However, we, as responsible lenders, only charge necessary fees. 

Bottom line

This is how bridging loans operate in Ireland premises. It comes with higher flexibility and freedom. One can use it for broader business and commercial purposes in the city. Moreover, you may get 70% of the total value of the property, which many cities lack. Thus, tap bridging loans if you plan to purchase or renovate a commercial property.

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