Re-bridging loans: refinancing a bridge that has run over

A re-bridging loan is a new bridging facility, usually from a different lender, that repays an existing bridge which has reached or passed its term without the original exit being completed. It is a refinance of short-term debt with more short-term debt, used when the borrower needs another few months rather than a long-term solution.

Bridges overrun for ordinary reasons. A buyer pulls out late. Planning takes longer than expected. Building works hit delays, or costs rise and the work stops. A term lender's valuation comes in below the figure the plan relied on. A tenant takes longer to sign. In each case the property may still be sound, but the original lender's term is running out and their patience may be too.

How a re-bridge works

1. Get the facts on the existing loan. Request a redemption statement showing capital, accrued or rolled interest, any default interest and fees, and the date it is valid to.
2. Re-test the exit. Work out why the original exit failed and what the new, realistic exit is: a sale, a refinance or a completed project.
3. Approach new lenders. A new lender values the property, reviews the revised exit and decides whether to refinance.
4. Complete the refinance. On completion the new lender pays off the old bridge, the old charge is removed and the new lender takes a charge in its place.

A re-bridging loan suits a borrower whose property still has enough equity and whose exit has been delayed rather than destroyed. Typical situations include:

• A sale has been agreed but completion is delayed past the bridge's end date.
• Refurbishment or conversion works are nearly finished and a term refinance will follow once they are signed off.
• Planning consent has been granted late and the borrower now needs time to sell with consent or start works.
• The original lender will not extend, or will only extend on terms that make the position worse.

It is usually not suitable where the property's value no longer covers the debt plus the costs of a new loan, where the exit has disappeared entirely with no credible replacement, or where repeated re-bridges have already eaten most of the equity. In those cases a sale, a negotiated settlement with the current lender or a longer-term restructuring may be the more honest answer, and we will say so.

The best time to arrange a re-bridging loan is before the existing bridge expires, ideally while there are still several weeks left. Once a loan is in default, many lenders can charge default interest and additional fees, which increase the redemption figure every day. Some may appoint receivers to sell the property. A borrower who comes to the market with a clean, in-term loan has more lenders willing to look and stronger negotiating ground than one with a lender already taking enforcement steps.

If you can see the exit slipping, talk to your current lender and to us at the same time. Sometimes a short extension from the existing lender is the cheaper route; sometimes it is not offered or is offered on poor terms, and a re-bridge is needed. Having both options in view avoids a last-minute scramble.

A re-bridging loan often completes within a few weeks where the case is clear, the title is clean and the valuation supports the new loan. Lenders can give indicative terms within a few working days in straightforward cases. The legal work can take longer than on a first bridge because the outgoing lender's solicitors must provide redemption figures and release the charge, and any default or enforcement steps add complexity. Delays to watch for are slow redemption statements, title issues that were not resolved first time, and valuations on part-finished property.

A re-bridging loan is secured by a first legal charge over the property, replacing the charge held by the existing bridging lender. Where equity is thin, a lender may ask for a second charge over another property as additional security. If the borrower is a company, personal guarantees from directors are commonly requested, and some lenders take a debenture. Read our guide to personal guarantees before agreeing to one, particularly when the loan is already under pressure.

The cost of a re-bridge is made up of interest and fees on the new loan plus the cost of clearing the old one, which is why the numbers need checking before you proceed.

• Monthly interest. Bridging interest is usually quoted monthly and can be retained (deducted upfront for the term), rolled up (added to the balance and paid at the end) or serviced monthly.
• Arrangement fee. Charged by the new lender, usually added to the loan.
• Exit fee. Some lenders charge one when the loan is repaid; others do not.
• Valuation and legal fees. For the new lender, and your own solicitor.
• Costs from the old bridge. Rolled interest, default interest, extension or late redemption fees and any exit fee owed to the outgoing lender.

Because each layer adds to the balance, the main risk is that a re-bridge solves today's deadline but leaves too little equity for the next exit. We set out the full cost of the new loan against the redemption figure so you can see the net position before you commit.

The main alternatives are moving straight to longer-term finance, using development exit funding, or selling the property, depending on how close the project is to completion.

• Development exit finance: for completed or nearly completed developments where units are being sold, replacing development debt with a lower-cost short-term loan.
• Continuation finance: for developments that stalled part-way and need funding to finish.
• Commercial property refinance: onto a term loan, if the property is complete, let or trading and meets a term lender's requirements.
• Commercial mortgage: where a business will occupy the building and can show affordability.
• A sale: sometimes the right answer if equity is shrinking and no lender will support a further term.

Our guide to bridging loan exit strategies explains how to build an exit that lenders believe in, which matters even more the second time around.