Bridging finance, also called bridge loans, is an interim loan that’s used to "bridge the gap" between the acquisition of new premises and the sale of a current one. It is commonly used by property investors and developers to purchase a property before they have sold their existing property and have the funds to complete the purchase. Bridging finance can also be used for other purposes, such as renovation or refinance. The loan is secured by the property that is being purchased, and the lender will typically require a deposit or equity in the existing property as collateral.
There are several advantages to using bridging finance:
There are many reasons why someone might choose to use bridging finance:
Overall, bridging finance is an option for those who need funds quickly and have assets they can use as collateral. It can also be a good option for those who have difficulty qualifying for traditional mortgages or business loans.
Bridging loans can be used for a variety of purposes, with the following being the most common:
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A bridging loan is a short-term loan used to "bridge the gap" between the purchase of a new property and the sale of an existing one. It is typically used by property investors and developers to purchase a property before they have sold their existing property and have the funds to complete the purchase.
A bridging loan is secured against the property that is being purchased, and the lender will typically require a deposit or equity in the existing property as collateral. The loan is usually short-term, usually up to 12 months, and the interest rate is usually higher than a traditional mortgage.
While they wait for their current home to sell, homeowners might buy a new one with the aid of bridge loans. While they wait for their present house to sell, borrowers use the equity in their current residence as a down payment for a new one.
The amount that you can borrow through a bridging loan will depend on several factors, such as the value of the property that is being used as collateral, your creditworthiness, and the lender's policies. Typically, most bridging loans are based on a loan-to-value (LTV) ratio, which is the amount of the loan compared to the value of the property. Bridging loan LTV ratios can range from 50% to 90%, depending on the lender and the circumstances. So, for example, if you have a property valued at £1 million and the lender will lend up to 70% LTV, you can borrow up to £700,000. However, it's always best to check with different lenders, as their policies and lending criteria vary.
The key difference between a bridging loan and a mortgage is how it is repaid. Bridging loans are generally repaid within 12 months by means of financing, property sales, or funds from an alternative source. Unlike mortgage finance, which is intended to be long-term,
Bridging loans are typically more expensive than mortgages because they are considered higher-risk and are meant to be a short-term solution. The interest rate on a bridging loan is often higher than the rate on a mortgage, and there may also be additional fees, such as arrangement fees and exit fees. Additionally, the lender may require the borrower to pay interest on the loan in advance. However, it's always best to get quotes from different lenders to compare rates and fees.
The requirements for a bridging loan will vary depending on the lender, but typically they will require a deposit or equity in the existing property as collateral and may also require a credit check and proof of income.
Yes, a valuation will be needed on the property you are offering as collateral. In certain cases, it is possible we can offer a free valuation by means of an electronic automated valuation method called “AVM”. In cases where we cannot accept this, we will need a RICS valuation.
Yes, you will need representation from a solicitor who will consult with our solicitor during the loan process. Ensure you choose your solicitor based on their experience in the sector.
The costs associated with a bridging loan will vary depending on the lender, but typically they will include interest, arrangement fees, valuation fees, and legal fees. Bridging finance typically has higher interest rates than a standard mortgage product due to the fact that lenders do the equivalent amount of work for a 12-month return as they would for a standard mortgage, which is around 25 years. The risk factor for lenders is higher too, which is reflected in the cost. We are fully transparent in all costs and prices and endeavour to find the best deals for our clients at the lowest prices.
Bridging loans can be arranged quickly, often within a few days, making them a good option for those who need to move quickly on a property purchase.
Generally, rates are calculated by LTV (loan to value), type of security, borrower profile, loan amount, etc. When comparing loans, you should look at interest rates but also take into account other fees and interest to calculate the total cost of the loan.
The risks of a bridging loan include the possibility of defaulting on the loan if the existing property is not sold in time or if the borrower is unable to repay the loan. Additionally, the interest rate is usually higher than a traditional mortgage, which can increase the overall cost of the loan.
A bridging loan is typically paid back through the sale of the property that was used as collateral for the loan. The proceeds from the sale are used to pay off the outstanding balance on the loan. Some lenders may also allow the borrower to pay back the loan through other means, such as refinancing or obtaining a long-term mortgage. It's important to note that most of the bridging loans are short-term loans, and they are to be paid back within 12 months. It is essential to have a clear exit strategy in place before taking out a bridging loan, as failure to repay the loan on time can result in the lender taking possession of the property.
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