Since 2023,  Bridging Finance Solutions,  have worked tirelessly to expand operations in Scotland and our BDM Jon Durie is very experienced in all matters bridging and on hand to assist. 

Since our expansion, we have successfully sought out and formed partnerships with local brokers and property investors, supporting their own expansion efforts. 

It is essential to note that there are distinct differences between bridging loans in Scotland and those provided in England, primarily due to the distinct legal and property systems in place, particularly in relation to legal requirements. 

In this blog, we will outline the distinct differences between bridging loans in the three countries and provide a clear explanation of what bridging loans are for our Scottish clientele. 

What is a Bridging Loan?

A bridging loan serves as a short-term option to ‘bridge the gap” when purchasing a property before selling another, or if you need quick access to funds.  Bridging loans allow for rapid funding, enabling you to receive funds in as little as 5 working days. 

Bridging loans serve as swift alternatives to mortgages, as they can be secured rapidly and demand a significantly shorter commitment period. Typically, borrowers must repay bridging loans within 12 months or less. The bridging loan repayment limit rarely exceeds 24 months and can be repaid in as little as 6 months, making them ideal short-term solutions. 

Some reasons for applying for a bridging loan include:

• Buying a property at auction. 
• Buying a new home while waiting for your current home to sell. 
• Breaking a mortgage chain. 

Flexibility is one of the main reasons why people choose to take out a bridging loan, as it can be acquired with shorter notice. 

Bridging loans can be secured against land and both residential and commercial properties, and you can choose from a selection of payment plans. Interest rates on bridging loans are typically higher than those on standard loans and mortgages, with interest calculated monthly instead of annually. 

These loans provide repayment flexibility, allowing borrowers to choose between making monthly payments or deferring the total payment as a lump sum at the end of the term. Read our complete guide to bridging loans for more detailed information.

Why Choose a Bridging Loan Over a Traditional Mortgage? 

Working with bridging loan lenders is often the best option when rapid access to funds is required. Bridging loans are known for their fast processing times, while mortgages can take months to secure, making them an inconvenient solution for situations such as purchasing at auction or buying a property before the sale of a previous one. 

Because bridging loans are designed as a short-term finance option, they are able to provide flexibility that you can’t get from a standard loan, making them perfect for completing projects that require a quick turnaround. 

Why Choose a Bridging Loan in Scotland? 

Scotland’s housing market has remained active, with competitive bidding and a steady demand for properties, particularly in cities such as Edinburgh, Glasgow, and Aberdeen. 

In Scotland, it is not uncommon for closing dates to be set on property sales, which means that properties can often be snapped up quickly, resulting in intense competition to secure a property. 

Bridging loans allow you to move fast, giving you the edge over anyone competing for the same property as you’re the same as a cash buyer.  While others may have to wait weeks or months to secure a mortgage, those looking to take out a bridging loan can obtain the necessary finance in as little as 5 days. 

There has been an initiative in recent years to modernise rural Scottish and city-centre properties, making the most of the beautiful properties that already exist in Scotland. This has led to a growth in auction purchases and renovation projects, which fast bridging loans are perfect for. 

Common Examples of When You Might Use a Bridging Loan in Scotland

Some common examples of when you might need to use a bridging loan in Scotland include:

• Buying a property at auction.
• Securing a home before selling an existing property (avoiding a property chain).
• Property development loans in Scotland: funding refurbishments, renovations, or conversions.
• Raising capital for business cash flow.
• Paying off tax bills or other urgent financial obligations.

While Scotland continues to thrive as a hotspot for property investment, bridging loans provide investors with the security they need to act quickly and capitalise on market opportunities. 

The short-term financial solution provided by bridging loans in Scotland aligns perfectly with the dynamics of the Scottish property market, making them an ideal solution for anyone looking to extend their portfolio or buying a home to live in.  

How Scottish Property Law Might Affect Bridging Finance

One factor to consider is how Scottish property law may impact bridging loans and property development finance. Scotland operates under Scots Law, which is a different legal system from that of England and Wales. 

In Scotland, the legal framework stipulates that a property purchase becomes binding upon acceptance of the offer. As a result, sellers expect buyers to have their financial arrangements in place before making an offer. One method to ensure this is by securing a bridging loan.

Buyers must be confident in their ability to secure bridging finance early in the process, which requires fast action on your part. 

This underscores the importance of collaborating with a principal lender that you can trust, as they possess the ability to assist you throughout the loan process, providing a finance option with loan terms that suit your lifestyle. 

The Types of Bridging Loans Available in Scotland

If you are looking to obtain a bridging loan in Scotland, you will be glad to know that even though there are some differences between property laws in Scotland and England, you can still access a range of bridging loans.

The types of bridging loans available in Scotland include:

Regulated Bridging Loans

A regulated bridging loan is a type of loan regulated by the Financial Conduct Authority (FCA), for residential properties rather than commercial ones. This type of loan provides enhanced consumer protection and stricter regulations.

Regulated bridging loans can be used by those who want to purchase a new home before selling their current one, as well as individuals undertaking significant property renovations or constructing a new residence for personal use. 

Unregulated Bridging Loans

Unregulated bridging loans are often used to purchase property that will not serve as the primary residence of the borrower or their family. 

The FCA does not oversee unregulated bridging loans, leading to reduced consumer protection for borrowers. 

Auction Finance

Auction finance bridging loans are short-term loans specifically designed to help buyers purchase property at auction. When buying a property at auction, you typically need to provide a 10% deposit to secure the sale, with the full debt settled within 28 days.

Because you can get an auction finance bridging loan in less than 5 days, this type of loan offers a fantastic and flexible solution for meeting tight deadlines. 

Property Development Financing

Development finance is a type of funding intended to support property developers in the construction, conversion or renovation of a property. 

Development finance can be utilised for a wide range of projects, making it an ideal solution for individuals seeking to work on residential or commercial properties. 

Refurbishment Loans

As mentioned, Scotland is home to thousands of properties with the potential to be transformed into usable, residential or commercial properties with the right refurbishment. 

Refurbishment finance can be used to cover the costs of property refurbishment, thereby adding value to the property. As more people attempt to renovate existing properties, refurbishment loans are gaining popularity. 

Commercial Bridging Loans

Commercial bridging loans are short-term finance solutions, exclusively given to businesses, typically used to bridge the gap between the purchase of a commercial property and securing long-term funding for a commercial development. 

How to Apply For a Bridging Loan in Scotland

If you are located in Scotland and are looking to purchase, develop, or refurbish a property, a bridging loan may be your best option. 

You will be glad to know that applying for a bridging loan in Scotland is quite straightforward; however, it is essential to understand how key legal differences may impact certain aspects of the application, such as lender requirements and timing.

Finding a Lender

Due to legal and administrative differences, not all bridging lenders operate in Scotland, so you must work with a lender that is familiar with Scottish law, such as Bridging Finance Solutions.

Submitting Key Information

Before any lender accepts your loan application, you must first provide key information about the property you need financing for or your development plans. 

Before a lender even considers providing you with a bridging loan, they will require the following information:

• The purchase price, location and condition of the property that you wish to purchase. 
• An exit plan that outlines when and how you plan on repaying your loan. 
• Comprehensive information about your personal financial situation.
• Personal information, such as your ID and proof of address, is required to prevent money laundering.
• Details about any plans for refurbishment or development of the property. 

Before applying for a bridging loan, you must have this information readily available, as not having the relevant information ready could delay your application and the loan process. 

The Eligibility Criteria For Bridging Loans

Though bridging loans are generally considered to be quite flexible, there is still a criteria that lenders would like borrowers to meet. 

Clear Exit Strategy

Before a bridging finance company agrees to provide a loan, it expects a borrower to have a clear exit strategy in place. This may be through the sale of the property, refinancing a mortgage or selling other assets. 

Regardless of how you plan to repay the loan, it is essential to confirm this before applying for the loan. 

Sufficient Investment Security

If you are applying for a bridging loan, it is likely expected that the loan will be secured against your property or land. Lenders need to know that if you do not make your repayments, the sale of the secured property will cover the cost of the loan.

Creditworthiness

It isn’t always necessary to have perfect credit, but a very poor credit history can usually be a good indication that you may not repay the loan, which is something that lenders need to consider. 

As well as looking at your credit history, they will also consider your past experience. If you already have a proven track record as a successful developer and a strong portfolio, they may be more inclined to support your next project. 

Property Location

The property must be located within the lender’s operational area. It’s crucial to note that not all lenders service Scotland, which is one reason we chose to expand our offerings to provide loans in that region. 

Required Documentation for Bridging Loans in Scotland

In addition to the documentation discussed above, including identification and proof of address, other supporting documents are required before someone can take out a bridging loan. 

Before applying for a bridging loan, ensure that you have the following documentation available:

• Evidence of funds. 
• Solicitor details. 
• Planning permission.
• Quotes and costs.

Step-By-Step Application Process

If you want to get a bridging loan in Scotland, you will need to follow the following process. 

Initial Consultation and Application

During this step of the process, you will complete your application and provide your lender with all the information outlined above. This is your opportunity to get to know your lender and discuss your project in more detail. 

During this part of the process, it is essential to provide as much information as possible to increase the likelihood of your application being successful. 

Property Valuation and Legal Checks

A full property valuation will then be carried out to determine the value of the land or property that you wish to take out a bridging loan for. Your lender will conduct legal checks to ensure that your documentation is up to date and that your claim on the property can be verified. 

Approval and Fund Release

If everything is as expected and your lender is satisfied that you will be able to repay the loan, your loan will then be approved. Once approved, your funds will be released, typically instantly, at the lender’s discretion. 

Bridging Loan Interest Rates and Costs in Scotland

When securing a bridging loan in Scotland, understanding the associated interest rates and charges is crucial. Understanding these costs can help you determine whether you can afford to take out a loan.

Arrangement Fees

This is the primary fee imposed by the lender for arranging the loan. Typically, it is a percentage of the loan amount, usually ranging from 1% to 2%, and is often incorporated into the loan instead of being paid upfront.

Legal Fees

In Scotland, bridging loans must be secured by a Standard Security, which requires a Scottish solicitor.

You’ll typically pay:

• Your own solicitor’s fees
• The lender’s legal costs (often passed on to you)

It’s hard to determine how much this will cost in additional fees, as legal fees are up to the discretion of your solicitor, and each practice may charge differently. 

Valuation Fees

In Scotland, the lender requires a professional property valuation to evaluate risk. A RICS-registered surveyor typically conducts this assessment, and the cost can vary based on:

• The property type
• Value
• Location

Interest Costs

Though not a fee automatically added to your loan, interest costs can be substantial in bridging finance.  Interest on a bridging loan tends to be paid monthly, though you do have the option to roll your costs and pay interest when your loan reaches its end.  Monthly interest rates can vary from 0.6% to 1.5% per month, depending on the lender and the borrower’s perceived risk of the transaction.

Work With the Right Lender in Scotland

Through this blog, we hope to have provided you with a clear understanding of how bridging loans in Scotland work. At Bridging Finance Solutions, we are proud to offer our services throughout England and Scotland, enabling more people to make their dreams a reality. 

In need of a bridging loan, or require further support in finding the right finance solution for your project? Fill out our simple application for short term funding, or get in touch with our expert team today.