Bridging Finance

13. 01. 09
posted by: addeduser
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Bridging loans are a short-term funding option for property transactions, or a short-term loan in pressing circumstances.

What is Bridging Finance?

Bridging loans are a short-term funding option. They are used to 'bridge' a gap between a debt coming due - and we're talking primarily about property transactions, here - and the main line of credit becoming available. Or they can simply act as a short-term loan in pressing circumstances. The main purpose of bridging finance is to accommodate a property purchase that otherwise would not be possible. As you might expect with a stop-gap measure, they can be significantly more expensive than a standard mortgage.

What are Bridging Loans and how do they work?

Bridging loans are designed to help people complete the purchase of a property, you can use a bridging loan to purchase a buy to let a new residential property or commercial property, they’re seen as short-term solution and give the customer access to money that they would normally not have access too. As with any quick fix solution it comes at a price and can often have a high interest rate.

As well as helping home-movers when there is a gap between the sale and completion dates in a chain, this type of loan can also help someone planning to sell-on quickly after renovating a home, or help someone buying at an auction.

As banks and building societies have grown more reluctant to lend in the wake of the worldwide credit crunch, there has been a huge influx of throw up bridging lenders into the market, which has allowed the property market to keep moving at a reduced rate. Without the new lenders we may still be stuck in a stagnant market like in 2008.

Bridging loans have their faults and as well as high rates there can be hefty administration fees on entering the agreement but also when existing the agreement, which eat away at equity you may have in the property.

Who are Bridging Loans aimed at?

Generally speaking, bridging loans are aimed at landlords and property developers, including those purchasing at auction, where a mortgage is needed within 28 days, or the auction winner could result in losing their deposit.

They may also be offered to wealthy or asset-rich borrowers who want straightforward lending on residential properties but have found it difficult to obtain the high loan amounts through a traditional lender due to the market conditions.

When should you use Bridging Loans?

Recently, there has been a growing trend among borrowers to use bridging loans because high street and private banks are taking longer to process applications for larger home loans. Some borrowers are also viewing bridging loans as a simple alternative to mainstream lending.

While a bridging loan may sound tempting, if you're thinking about taking one out, you need to think carefully about your exit strategy. This might, for example, involve getting a mainstream mortgage or a buy-to-let mortgage, or selling the property altogether. The problem is, you may not have any guarantee of being accepted for a mortgage with a mainstream lender after having taken out a bridging loan. This could put you at risk of losing your home.

The FCA has concerns that advisers could be potentially recommending this type of loan too quickly when it may not be the best solution. Beech Finance offer a wide range of products and will discuss all options with you before you make any decision to proceed with a bridging loan. We will also discuss the what the future may hold if you’re to take out such finance, to make sure you have a clear understanding of the products your taking out on your property.

Beech Finance will discuss any fees that you may incur by accepting the bridging finance, to make sure there’re no nasty hidden charges, hefty legal fees or additional administration fees. Bridging loans should not be viewed as an alternative to mainstream lending.

Where can you get a Bridging Loan?

Bridging lenders can come in all shapes and sizes, ranging from one-man bands up to professional outfits regulated by City watchdog, the Financial Conduct Authority (FCA)