Bridging loans have traditionally been seen as a “last resort” financing option, often taken out at the last minute to prevent the sale chain from breaking down and the borrower losing their dream property.
The significantly higher interest rates and fees payable for bridging finance when compared to traditional mortgages have, in the past, restricted their use. However, with rates and fees reducing and a wider availability of lenders in the market, the flexibility of this type of lending can be invaluable in a range of circumstances.
In our latest post we explain how bridging finance works and the situations in which this short term financing might be useful.
What is a bridging loan?
A bridging loan is a short term property loan, typically between 6 to 18 months in duration. They can be arranged within a matter of days and without the stringent affordability and property criteria of standard mortgage lenders and so give considerable flexibility. They are most often used to “bridge” the gap between property sale and purchase or to give the borrower time to arrange a traditional mortgage on the property.
There are both regulated and non-regulated bridging loans available and at Mortgage Style we can offer both. Where the finance is secured against a residential property, or one intended to be so, then a regulated loan is required.
A big advantage of bridging loans is that they can be secured on all types of property including those that would otherwise be unacceptable for the majority of mortgage lenders. They can also be secured as a first or second charge on a property and so as long as there is sufficient equity they can be taken out in conjunction with existing borrowing.
Uses for Bridging Finance
There are a number of possible scenarios when using a bridging loan and they can provide a quick and flexible short term solution.
Preventing a sale chain from breaking down
The most common use for a bridging loan and often seen as the only scenario that this type of short term funding can be used for. The bridging finance essentially funds or “bridges” the timing gap between the purchase and sale of properties and helps the borrower to continue within the sale chain and complete on their purchase when there has been a delay with the sale of their existing property.
The finance only needs to be in place until the sale of the property has completed at which time it is repaid in full. The majority of lenders allow the loan to be repaid after just one month without penalty.
The timeframes for completing purchases via Auction are often very tight, typically within 28 days of having a bid accepted. Bridging loans can be a quick and flexible way of ensuring that the finance is in place to complete the sale within these deadlines. After the sale has been completed, the purchaser then has time to arrange a longer term solution which once in place will repay the bridging finance.
Property renovation and development
One of the major benefits of bridging finance is flexibility in the type of properties that it can be secured against. Properties that are in poor repair, made of unsuitable building materials, in need of a change of use or being developed can often struggle to be accepted by traditional mortgage lenders. Using bridging finance enables the borrower to complete the purchase, do the work and then either re-sell the property or refinance it with a traditional or buy to let lender once the property meets their more stringent criteria.
Property developers and buy to let landlords adding to their portfolio often utilise bridging finance to fund their projects at the outset until they can secure longer term funding.
Solution to short term cash flow issues
For businesses owning their own premises, bridging finance can be a flexible and straightforward option to enable them to solve short term cash flow issues caused by unexpected capital outlays, seasonal downturns or defaulting debtors. Borrowing from banks post banking crisis has become considerably harder for businesses and so this can provide them with a relatively straightforward solution and enable them to utilise an existing asset on a short term basis.
Avoiding an unnecessary forced sale
For individuals facing the prospect of a forced quick sale either as a result of the threat of repossession or as part of a divorce settlement, bridging can enable them to pay off the debt and buy them time to find a longer term solution. Similarly, funding issues caused by inheritance and probate matters such as paying tax or buying out other beneficiaries can be solved initially by utilising this type of finance.
100% lending available
It is actually possible to borrow 100% of the purchase price if the client has additional property that could be used as security. Bridging lenders will allow clients to use the equity in their additional property(s) to increase the available loan and this could be several extra properties if necessary.
Help and Advice from Mortgage Style
No matter why you might need access to short term finance secured against your property, get in touch with Mortgage Style to see if a bridging loan could be the best option for your circumstances. With a number of exclusive products including ‘zero set-up fee’ deals they are sure to have a suitable option for you.
We work in conjunction with specialist bridging lenders and private investors enabling us to get cases agreed where mainstream lenders may not be prepared to lend. We can also arrange a “bridge to bridge” loan enabling a borrower who has come to the end of their existing bridging term, but still need the funds, to re-finance and avoid heavy penalties and rates for not repaying the debt on time.
Call the team on 0117 9070818 for an initial free consultation and friendly advice.
Tags: Bridging Finance
Categorised in: Bridging & Finance
This post was written by Marcus Robinson