Bridging Loan Advice
Instances that a bridging loan could be useful for:
- Auction purchases
- Downsizing or upsizing
- Chain breaks
- Investment purchases/buy to let
- Nil valuation & or full retention
- Commercial property
- Inheritance tax payments
- Lease extensions
- Change of use i.e. commercial to residential & vice versa
- Multi-asset lending
- Land only purchases
- Purchase before/without sale
- Self-build & or conversions
- HMO purchases
- Below market value transactions
- Agricultural land or buildings
- Funding without monthly payments
- Repaying another bridge
- Non-status capital raising
While credit cards, overdrafts and conventional loans serve invaluable purposes, they’re often too slow and too limited in scope to cover requirements. When larger sums of money are needed over short periods of time, bridging loans could be the answer.
Bridging loans are specialist financial products, typically without monthly payments and offered in sums of at least £25,000 to be repaid in no longer than 12 to 36 months. Businesses and property developers routinely use bridging loans to ‘bridge’ gaps in their own finances, subsequently paying the entire balance back in one lump sum as quickly as possible.
The primary advantages of bridging loans being as follows
- Fast payments – usually receive the money you require much faster than with any comparable financial products.
- Competitive rates and low borrowing costs – bridging loans are designed to be as affordable and accessible as possible for those who need large sums of cash in a hurry. Accessed via the very best independent service providers, total borrowing costs can be surprisingly competitive.
- Simple application processes and lending criteria – all applications are judged on their own merits, and credit scores do not always factor into the equation. Proof of income and credit arrears may also be inconsequential.
- Available for all purposes – just provided the applicant can repay the loan as required, bridging loans can be used for any legal purpose whatsoever. A great way of taking advantage of limited-time investment opportunities that would otherwise have been missed.
With bridging loans, exit strategy refers to the strategy by which the balance of the loan will be repaid by the borrower. It is critically important to ensure that a reliable exit strategy is in place, given that bridging loans are not intended for use as long-term financial products. Shorter repayment periods naturally attach higher monthly interest rates, meaning excessive costs if bridging loans are not repaid as initially agreed. Renewal fees, penalties and additional charges can be payable if the loan is not repaid on time.
An exit strategy is only considered viable if it makes sound financial sense i.e. an applicant with heavy credit issues is unlikely to be able to refinance in 6 months so this would not be an acceptable exit whereas selling during the same time period could be acceptable. One common example of an exit strategy being the sale of a property – you believe the money is coming, but you cannot 100% guarantee it will happen or in a specific timeframe. Just as soon as the property sale goes through, you use the funds to repay the balance on your loan. If there are any major concerns or discrepancies whatsoever, it does not represent a viable exit strategy.
Alternatives to Bridging Finance
There are several alternative options to bridging finance, which depending on the requirements of the borrower could prove appropriate. Examples of which include conventional and commercial mortgages, secured loans, commercial loans, development finance and equity release.
In all such instances however, there are typically delays involved in the procurement of the funds required. If financial support is being sought to bridge an immediate gap, bridging loans are usually the preferred option.
Nevertheless, it pays to speak to the professionals before making any significant decisions regarding financial products like these. Independent expert advice should always be sought ahead of time, in order to carefully consider all available options. Working with a leading broker means gaining access to the largest market of established and independent lenders across the UK, offering an endless array of dynamic and flexible financial services.
Buying Properties at Auction
Bridging loans are also routinely used by investors looking to purchase properties at auction. In most instances, a successful bid at an auction means paying the initial 10% deposit at the auction on acceptance of successful bid, followed by the rest of the balance in no more than around 28 days. As it can be extremely difficult to procure such extensive funds by way of normal mortgages and loans in the timeframe, bridging finance offers a lifeline for auction property buyers.
Once again however, it’s important to ensure that you have a guaranteed exit strategy in place, in order to repay the balance of the loan as agreed. Before going ahead, consult with a reputable independent broker to explore the various types of auction finance available, ensuring you’re happy with the agreed terms and borrowing costs.