What Is A Short Term Bridging Loan?

A bridging loan is very different from a short term standard bank mortgage loan, but how?

A short term bridging loan is a type of short term property backed finance loan. They are often used to fund you or your property project for a period of time whilst allowing you to either refinance or remortgage to longer term debt or sell a property.

Bridging finance short term loans are usually offered for between 3 to 12 months but can be extended longer to 18 months upon request at the start of the bridging application. The loan is then repayable in full at the end of the term.  Like any standard interest only financing product the capital element of the loan remains and is payable at the end of the financing term. Usually the monthly interest is often rolled into the loan, meaning there are no repayments to make during the term of the loan so you use any existing capital for the work on your project.

The application process is more simpler than other types of borrowing and applications can complete very quickly providing all financial documentation is available and at hand. The process can be completed in 7 to 14 days bus some cases if urgent such as property repossession can be completed in as little as 3 or 4 days.

Short term bridging finance can be offered against almost any type of commercial or residential property or even against land and can be used for a number of different reasons.

The main uses of bridging loans are:

  • Purchasing property quickly – such as auction purchases
  • Buying uninhabitable property that needs work
  • Funding property restoration or conversion work
  • Preventing a repossession of a property
  • Buying property thats below market value

The pros of bridging loans

  • Applications are usually completed in under 14 days, making them ideal when funds are needed quickly.
  • As there are often no monthly repayments to make, bridging finance can be used to raise capital where cash flow is tight, but you have the assets to comfortably repay the loan.
  • The bridging market is very competitive, and this is leading to a reduction in interest rates. With rates starting from as little as 0.45% per month, bridging finance has never been cheaper.
  • Where properties are being purchased under value, lending can often be based on the full value of the property, meaning it’s possible to purchase a property without a deposit.
  • Bridging loans can be used to purchase properties that would be ineligible for borrowing using other types of borrowing, such as property that is not habitable.Things to consider before taking out a bridging loan

There are a number of key things to consider before taking out a bridging loan, taking the time to consider:

Always Consider Total Cost

When comparing products from different providers, always consider the total cost of the loan, rather than just the interest rate. People often chase the lowest interest rate, but many lenders will charge large exit fees, fund management fees and other ‘hidden’ costs.

Always ask for a breakdown of the total cost of taking the loan before proceeding as this makes it much easier to compare different providers.

Is Your Repayment Method Viable?

The main danger when taking out a bridging loan is that you will be unable to repay the loan at the end of the term. Always consider how the loan will be repaid upfront and make sure the proposed exit is viable.

If you’re planning to sell your property, make sure the term of the loan gives you sufficient time to find a buyer and for the sale to complete. If you’re forced to pursue a quick sale, you could end up receiving far less for your property than you would like.

If you plan to refinance onto a longer-term loan, you should check that your application is likely to be accepted. Where possible, aim to get an agreement in principle from your chosen lender before completing on your bridging loan.

Am I Getting the Best Possible Deal

The difference in cost between different providers can be significant. In addition, some lenders can only be accessed through a limited number of brokers, meaning you may not be able to access the lowest rates.

By checking with one of the bridging loan providers or brokers, you will give yourself the best possible chance of securing the best deal.

Click here for next page Regulated Bridging Finance

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Bridging Finance Short Term November 9, 2019