An Englishman’s home is his castle, and nowhere is it more evident that we’re all made for a slice of property pie than here in the UK, where house prices show no sign at all of slowing.
But whether you’re trying to secure a family home, or buy investment property for profit, you’ll need to have the finances in place to do so. Bridging loans are a great way of helping fund property purchases, so read on for all you need to know and how to find the best deal for you.
What is Bridging Finance?
Bridging loans are designed to help you ‘bridge’ a gap between funds that you don’t yet have, but expect at a future date and a large expense you need to pay for at once. This is most common in the property market, where for example, you can be waiting for the sale of your home to go through, but need to go ahead and buy another house before completion.
Bridging finance is generally only given to those with existing assets or a clear ‘exit strategy’ in place, which assures lenders of the repayment of the loan. Most lenders limit the duration of a loan to 12 months if there is no clear exit strategy in place and you have opted for what is known as an ‘open bridge.’ It’s also worth remembering that interest rates are higher than ordinary loans and mortgages and that you will also be subject to arrangement fees.
Advantages of Bridging Finance
The key advantages to bridging finance include the following:
- Maintaining your place in a Property Chain
If you’re struggling to secure a property then bridging loans plug the gap between the sale of your existing home and a new one.
- Speed of Arrangement
Bridging finance can be organised within days. This is especially useful if you’re trying to buy under tight deadlines, for example, at auction.
- Property Renovation or Development
Mortgage lenders require property to be in good condition, so if you’re intending to buy a property in poor condition you will not be eligible for a mortgage. Bridging finance makes this possible.
- Rolling Over Interest
Rather than having to meet monthly repayments, bridging finance allows you to roll over the interest to the end of the loan term. This helps with cash flow if funds are being invested into the renovation of a property for example.
- Rental Valuations
Buy to Let lenders require rental valuations to be made before qualifying for finance. This isn’t a requirement of bridging finance, so if you’re borrowing for buy to let purposes then you won’t need a rental evaluation.
Finding a Suitable Bridging Loan
As interest rates are high, then be sure to shop around for the best deal you can find. http://www.first4commercial.com/ recommends using a commercial bridging finance broker, who will search the market for you to save time and money. Always remember however, that you need to be sure of how to repay the loan. Bridging loans are secured loans, and so your home (or homes) are at risk should you fail to repay.
Wendy Lin is a freelance writer and personal business accountant. She retired from teaching and went on to become a successful female entrepreneur.