Exploring the Different Exit Strategies for Bridging Loans

Bridging loans have ballooned in popularity over recent years due to their flexibility and the fast approval process that comes with them. This has made bridging finance the preferred choice for property buyers and investors. These short-term loans serve as a lifeline for those who need quick funds to bridge the financial gap during property transactions. Although gaining a bridging loan can be relatively easy, it’s crucial to have a well-thought-out exit strategy to ensure a smooth transition when the loan term ends; this is usually anywhere up to 12 months.

Conventional mortgage refinancing

One of the most common exit strategies for bridging loans is to secure a traditional mortgage to replace short-term financing. This option works best when the borrower anticipates that they will have improved their creditworthiness and property value during the bridging loan term. Conventional mortgage refinancing offers longer repayment periods and lower interest rates, providing you with financial stability for the future.

Property sale

Selling the property is another exit strategy that borrowers often employ. This approach is suitable for individuals who initially acquired the property solely for investment purposes or when circumstances change and the property is no longer needed. By selling the property, borrowers can repay the bridging loan in full. Any remaining profit can be reinvested in other ventures.

Cash reserves

Borrowers who have access to liquid assets or cash reserves can use them to pay off the bridging loan. For those who are in this situation, this is the best option. This option avoids additional debt and the potential stress associated with finding alternative financing. By using cash reserves, borrowers can swiftly clear the loan, allowing them to focus on their property goals without unnecessary financial burden.

Refinance with a new bridging loan

In some cases, borrowers may find that they need to extend their bridging loan due to unforeseen circumstances or delays in their exit plans. In such situations, refinancing with a new bridging loan can be an option. This approach provides borrowers with more time to complete their exit strategy, although we strongly advise you to carefully assess the costs and terms of the new loan.

Equity release

If the property has appreciated significantly in value during the bridging loan term, borrowers may consider an equity release as an exit strategy. Equity release allows homeowners to access a portion of their property’s value while continuing to live in it. This option enables borrowers to pay off a bridging loan and access funds for other purposes without selling the property outright.