Bridging loans are becoming more popular and specialist lenders expect them to surge further throughout 2025. If you are considering such a loan, have you considered the bridging loan exit strategies available to you?
It is important to understand that you need an exit strategy for a bridging loan, that’s because they are short-term loans, some for as short a period as 6 months.
Failing to pay them back can lead to paying late payment fees and increased interest rates. In some cases, it can mean your property is repossessed.
Mortgages are designed to be paid back over a number of years, you exit that loan when you have paid every penny you’ve borrowed and all the interest accrued.
But bridging loans are different. They are a short-term solution until you put everything in place to secure a long-term loan, such as a mortgage.
The speed at which you can secure a bridging loan makes them very popular for many people. But if you become one of them, make sure you understand your exit strategy.
Bridging loan exit strategies
You need an exit strategy in place to repay your bridging loan when the deal ends. It is essential that you repay the loan on time, if not, your interest could ‘roll up’ and that could make it unaffordable.
Why are bridging loan exit strategies important?
Failing to pay a bridging loan means the account is placed into default. Defaulting on any loan can be costly, and if it is secured on property, it could be repossessed.
As well as the problems this creates, your credit rating could be affected, this might mean you struggle to secure other finance in the future.
Unlike mortgages, bridging loans are not an affordable long-term solution. Lenders offer you the funding on the understanding that you will pay the amount back in full quickly.
When you take out your bridging loan, you must have in mind what your exit strategy will be. This helps the lender assess your application and what terms they will agree to. That’s because the lender’s focus is getting their funds back in full and without problems.
But what strategies are available to you?
What strategies can I use?
When choosing an exit strategy, lenders require as much detail as possible to help them decide what terms to offer you. The stronger your strategy, the fewer questions you will face from the lender. That can help speed up the process.
1. Selling the security property
If you need a bridging loan to buy a property before you sell your current one, then the sale of your property is one exit strategy. Your lender may insist that your property is on the market before your loan is completed.
They may require proof that your property is for sale. That could mean they request links to your estate agent’s website showing that it’s up for sale.
Lenders usually look at the average time it takes to sell similar properties in your area. This lets them understand how realistic your strategy is.
So, if you say you expect your property to sell in 2 weeks when the average time is 12 weeks, they may question how realistic your exit strategy is.
Lenders may also require regular updates about the sale of the property. For example, they may ask about any viewings or updates from your estate agent.
2. Refinancing
This strategy involves replacing the bridging loan with another long-term financial product, such as a mortgage. It is a common choice when borrowers need more time to stabilise their financial situation. This is often used when better loan terms are anticipated in the future.
Securing a mortgage or other long-term loan means repayments can be spread over a longer period. That potentially means the repayments are lower and more manageable.
To do this, you will need a good credit history and enough equity in your property to qualify for these favourable refinancing terms.
3. Selling a second property
Using a secondary property as security on a loan is another strategy. But it can be tricky to secure. That’s because the lender doesn’t have a charge on the property and no control over the exit.
They may add conditions on the agreement that allows them to contact your estate agent directly for updates.
Lenders may also require ‘step in rights’, which means they will take over the sale of the property if they do not believe you are doing enough to sell it.
4. Selling investments
Selling other investments is another strategy that bridging loan lenders may accept. But the items must have a reliable value and be liquid.
It’s usually easier to use this strategy if you have tangible items, such as shares in a strong business, a classic car or antiques to sell.
5. Inheritance
If you are buying property and awaiting an inheritance payment to clear, this can be used as an exit strategy. Lenders require proof that the inheritance is a certainty. And they will need to understand the timescales about when it will be paid to you.
This usually means you need to supply a copy of a will, probate documents or the solicitor involved should supply confirmation.
If you have enough information, then lenders see this as a low-risk exit strategy.
Which exit strategy should I use?
If you are unsure which exit strategy is right for you, we can help. Our team is always happy to help you find the right bridging loan deal for you. Contact us today for a chat.
Remember, your home may be at risk if you do not keep up repayments secured on it.
