While bridging finance has historically been seen as expensive and risky, it can be a great way to secure a good deal when used in the right way. For those who do not have enough liquid capital to make a purchase, bridging loans can provide a useful way to access funds quickly. Our Head of Real Estate, Alec Chohan, tells us why you should be using bridging as an alternative form of finance.
So, how do bridging loans work?
A bridging loan is a great option if you’re in between mortgages and need a short-term financial injection. It’s used to bridge the gap between your current mortgage and a new one, and can also help cover any costs associated with selling your existing property, like legal fees.
When deciding on a bridging loan, there are two main types to think about: closed and open. Closed bridging loans have a set date they must be paid back by, usually when the property purchase is completed. On the other hand, open bridging loans don’t have a specific repayment date – they should be paid back within a year. Generally, bridging loans have a short repayment period of 3 to 36 months. To get the best deal, you’ll need to provide evidence of how you plan to pay it back, such as proof of another property sale.
Bridging loans offer a lot of advantages, especially if you need to access capital fast. They provide short-term financing which can help you make a purchase or complete a project between different time frames. Usually, they’re secured against a property, and you can get up to 80% of its value as a loan. However, if the lender is offered enough security, they can usually give you the full amount you need. On top of that, they’re faster to arrange than traditional loans, taking an average of 56 days instead of 10-12 weeks. Plus, they usually have a repayment period of a few months. With Automated Valuation (AVMs) and Desktop Valuations as alternatives to full valuations, plus streamline legals like dual/sole or non-rep options (meaning you don’t need searches and the same solicitor acts for both lender and borrower) – bridging loans can be sorted out really quickly.
Bridging loans are really useful if you’re looking to buy properties that aren’t traditional. These properties include auction properties, properties being sold at a discounted price, HMOs or even those needing extensive renovation. They can also be used to help with EPCs, paying tax bills and gifted deposits. They’re also a great financing option if there’s a broken chain of buyers and sellers. Mortgage lenders usually don’t provide money for these kinds of properties, so bridging loans can really come in handy!
The great thing about bridging loans is that you have a lot of options when it comes to lenders and funders. Many of them have their own websites and online portals, so you can easily find the best fit for your business. Plus, there are plenty of online resources and loan comparison websites to help you compare lenders and funders. And if you need more help, you can always turn to professional services that can provide guidance and support throughout the loan application and approval process.
As you can see, there are many benefits to bridging loans. However, you may have heard that bridging loans are more expensive than other types of finance, and the cost of a bridging loan can vary depending on the amount borrowed and interest rate. At present, rates can range from 0.7% to over 1% each month (8%-12% annualised). For long-term financing, you could typically expect annual rates to be between 6%-9% per annum, depending on the asset type. Despite this, due to their short-term nature, bridging loans are often cheaper in the long run. To find the most competitive rates, it is recommended that you consult a broker for advice.
Bridging loans can be a great way to get access to quick capital if you need it in a hurry. It’s a flexible solution for many financial needs, but you need to make sure you understand the risks and costs associated with the loan. With the right information and advice, bridging loans can be really effective for getting the finance you need.
At Newable Finance, we make it easy to find the right lender for your financial needs. We’d love to help answer any questions you may have and share our expertise with you. Why not give us a call for a free consultation and gain valuable insights to make your property dreams come true?
Call our team on 020 3964 2770.
Visit our website to find out more about bridging loans and discover more about how Newable can help you and your business today!