U.K. Bridging Loan RMBS Explained
A bridging loan is a type of short-term financing, in which the borrower intends to refinance with a longer-term loan or repay if certain events occur (e.g., the sale of a mortgaged property. The lender typically collects accrued interest in a lump sum when the loan is repaid.
Bridging loans are often used to fund “fix and flips”, home auction purchases, residential to commercial conversions (and vice versa), and swift property acquisitions in high demand areas.
The short duration of the underlying loans may necessitate a revolving securitization structure where additional bridging loans can be sold into the transaction subject to performance triggers.
Because bridging loan interest collection often relies upon refinancing or property liquidation, securitizations might warrant external liquidity sources or deferrable notes to ensure timely payment of liability interest.
Source: Association of Short Term Lenders and EY Bridging Market Survey May 2023.
