With bridging loans, your lender will require you or your client to have a strong exit
strategy. This strategy can take various forms, including those listed below. To work,
it should be completed before the end of the loan, with documented proof that the
strategy is in place before the funds are available.
- Sale of the property
The developer might refurbish the property and sell it once the work is
completed. Selling the property within the loan timeframe would be an ideal
exit plan. - BTL Mortgage
The landlord may be looking to expand his rental portfolio, and obtaining a
Buy-to-Let mortgage after a refurbishment that might boost the value would
be the perfect solution. - A mixture of sale and rent of properties
If the developer has multiple properties and wants to keep some as rentals,
he could cover the bridging loan by selling some of the properties he has in
development.
- Development loan
Perhaps the developer has bought a property at auction with a bridging loan
that requires significant refurbishment. A development loan is a great way to
exit the bridging loan and help raise funds for the work to be completed. - Release of funds from an investment
There could be a notice or waiting period to release funds from an investment,
and the developer is looking to purchase an investment property to rent.
Paying off the loan when the funds are released would be a good exit
strategy. Proof of funds under investment and their requested release would
be required. - Sales of other investment properties
A landlord or developer might want to sell some of their existing portfolio to
purchase a new property. Selling existing property or multiples would be a
great way to exit the bridging loan.
- Receipt of an inheritance
Depending on its complexity, probate can take time to release. A developer or
property investor may want to purchase a property before the funds come
through. Proof of inheritance and certification of its value would be required.
The grant of probate is usually valued at less than the property’s actual value.
Two exit plans are always preferred if the first strategy is delayed or falls through.
They would help avoid expensive extra costs and penalties. For example, if the
property sale is delayed or has not been achieved, refinancing the existing loan
could be a good backup plan.