Short-term Loan Against Property: Advantages & What to Consider

In the housing market, purchasing a property and completing refurbishment works or a large development project often requires a significant amount of capital. A short-term loan against property helps landlords and developers put forward the money for a project, without entering into a long-term commitment.

• But what is a short-term loan against property?
• How do they work and what are the advantages?
• What should you consider when it comes to short-term finance?

We’ve answered all these questions for you!

What is a short-term loan against property?

A short-term loan against property is available to support a borrower’s temporary capital needs. If a borrower is looking for a short-term finance solution for a property investment, it’s likely they’ll need to take out a bridging loan. Bridging loans are usually used to complete an urgent property purchase or project. Aside from bridging loans, there are also buy-to-let (BTL) mortgages, for those in need of funding for slightly longer timeframes.

Types of short-term loans against property

We provide short-term property loans via both these routes, with bridging available up to 24 months, and our buy-to-let mortgage available for 10 years. All our specialist finance products factor in our clients’ specific circumstances along the way. To understand more about what they are and how they work, we need to look into the 2 main types:

1)      Bridging loans

A bridging loan is a form of alternative finance that ‘bridges’ a financial gap. Bridging loans can come in many shapes and sizes and can be tailored around borrowers’ circumstances, determining the type of funding required.

For instance:

• Commercial & semi-commercial loans can help borrowers bridge a funding gap during lengthy purchases. If you’re new to commercial finance, then why not view our top uses of a commercial bridging loan.
• Developer exit loans may be issued to developers in need of breathing space from costly extension charges. Find out more about how development exit finance works.

Previously seen as a niche option within the lending industry, bridging is now increasingly being viewed as a key resource for a highly competitive market.

In Q2 2024 alone, bridging applications totalled £10.2bn, according to the Bridging & Development Lenders Association (BDLA). What’s more, bridging completions grew to a record £1.74bn in Q2 2024, while loan books also hit a record level of £8.4bn.

Source: BDLA

2)      Buy-to-let mortgages

Specialist buy-to-let mortgages are unregulated mortgages that move with bridging-like speed and have flexible criteria. This makes it more easily accessible for borrowers, particularly if they have adverse credit or if they are offshore clients looking to invest in UK property.

The demand of flexible short-term lending solutions is likely to rise in the UK over the coming months and years, given the chronic shortage of supply. According to a recent study from Capital Economics, tenants are struggling against a lack of choice. Nearly 230,000 extra rental properties needed every year just to match demand.

Source: The Guardian

How does a short-term loan against property work?

Short-term property loans are dissimilar to other financial products. This is because specialist finance providers separate the Principal (borrowed capital) and the interest rate incurred, into two different elements of an agreement.

When deciding on how the Principle will be resolved – and in turn the length of the agreement – borrowers have two options to choose from:

• Open bridge – agreed time period of repayment but no exact repayment date.
• Closed bridge – requires the Principle to be repaid by a specific date.

Once the agreement has matured, borrowers will need to pay off the interest that was agreed during the application process.

At Market Financial Solutions, we offer borrowers a variety of interest repayment options:

• Monthly
• Rolled-up Interest
• Retained Interest

What are the advantages of short-term loans?

A short-term loan against property has advantages long-term financial options cannot provide:

1. No tick box lending

Short-term loans can be very adaptable. At Market Financial Solutions, we underwrite from day one, on a case-by-case basis. This allows us to provide borrowers with personalised finance that best suits their needs. As a result, we can take on the more complicated cases that many lenders who assess applications using a ‘tick box’ approach would shy away from.

2. Flexibility

This means that a wide range of applicants have access to a short-term loan against property, including:

• Foreign national applicants
• Applicants with poor credit history
• Second charge loan applicants
• Home improvement finance applicants
• Development exit finance applicants

Similarly, bridging loan products can finance the purchase or development of a variety of properties, including:

• Residential and buy to let
• Commercial and semi-commercial
• Properties bought at auction

3. Speed

In this competitive property market, speed is essential. For urgent cases, we can provide short-term lending solutions in as little as 3 days. This means investors and developers can complete deals or projects they might not have been able to secure by using a long-term financial option. Short-term property loans provide borrowers time to secure a property or portfolio of assets, whilst arranging long-term finance in the background.

What to consider when sourcing a short-term loan against property

Before investors and their brokers source short-term loans, there are some key considerations to be made:

Exit Strategies

It’s important to plan how you intend to repay the loan at the end of your term. Plan adequate time into your loan to mitigate any unforeseen delays to your exit. Discover our top 5 most commonly used exit strategies, for inspiration.

Timeline

The timeline for repayment is key, particularly for refurbishment or renovation projects. Whilst funds can be released quickly, it’s important investors calculate their monthly repayment capacity before agreeing to a repayment date or period. In short, investors should have a clear idea of how and when they’ll repay the loan. However, we understand that sometimes not everything goes to plan, so our dedicated team of underwriters are on hand to help find solutions, overcome complications and answer any questions you may have.

Documentation preparation

Before applying for a short-term loan against property, it’s helpful to have certain documentation close at hand, particularly if you need to move swiftly to complete a deal:

• Identification
• Proof of address
• Evidence of assets
• Evidence of liabilities
• Bank statements

How can Market Financial Solutions help with your short-term lending needs?

Where investors need flexibility, or even if they think their requirements are too niche to accommodate, a short-term loan against property can provide much needed relief and keep investment plans from falling through.

If you have more questions regarding short-term loans against property, or if you need a fast short-term lending solution, then contact our team today via phone +44 (0)20 7060 1234or email info@mfsuk.com.

Summary

Evidently, there are many elements to the specialist finance world. But while the details may seem intimidating at first glance, a short-term loan against property is structured around getting funding out quickly and in complicated conditions. Whereas mainstream lenders may shy away from complications, specialist finance lenders take them in stride and can help in complex circumstances.