Bridging loans are beneficial to get short term finance to add value and secure property. This can be regarded as an alternative for financing land purchase relatively quickly.
Earlier bridging loans use to attract up to 20% interest based on the type of project, security, loan size and the loan to value ratio. They can be termed for 12 months or less for individuals and businesses. These loans are flexible, fast and secured for any purpose.
There are two types of Bridging Loan. Let’s see what they are:
- Closed Bridge: In this, the date is set to pay the loan. For example, the borrower has fixed the date to sell the property with the completion date. The sale can be paid by the bridging loan.
- Open Bridge: In this, an exit plan is proposed payment repayment but it lacks definitive date. They will have a cut-off point when the loan can be repaid.
What are the uses of Bridging Loans?
Bridging finance is available for both residential and commercial property. These loans can be used by home builders, home buyers, landlords, property investors, and developers. It can be used to build a property and get funds for the refurbishment project. This is a great option for short-term funding to settle tax liabilities and fulfill the business obligation.
- Finance larger building material order
- Complete land purchase
- Buy development land
- Purchase auctioned property
- Refurbish a property
How Bridging Loans have been changing?
Earlier it was a specialist product and eventually, borrowers started recognizing how they can utilize the short term funds to get benefits from property transactions. These loans are popular for many purposes but mainly for development, auction and renovation projects. Businesses do take out fund for quick cash injection as well.
How can I take out a Bridging Loan?
The bridging loan has become prevalent in recent years. Many borrowers and investors are still unfamiliar with the process to get bridging loan and its uses. Your solicitor needs to send required information like insurance, searches, and Land Registry checks. After they are approved, the loan can be released.
When to go for Bridging Loans?
If you like a property and can’t keep it on hold for a long time, bridging loan is a great option. You can fund the property until you can flip the property for profit.
In case you are up for a home renovation plan, a bridging loan is a sensible option. You can increase the value of the property and sell it for a higher value.
You can opt for bridging loan if are running out of time. These are useful for property developer as they allow you to complete with buyers having instant purchasing power.
How much can I borrow with a Bridging Loan?
The amount of loan depends on property value that you are borrowing against. Lenders usually calculate the value based on the property rate. With the help of bridging finance calculator of Finanta you can calculate the interest and loan-to-value (LTV). While others examine the existing market value. You can stretch your borrowing amount but it will also lead to higher interest rates.
How to qualify for a Bridging Loan?
The core factor determining your qualification and amount is based on the value of the property. This is different from taking a mortgage. The lender won’t check your financial situation and sources of income. The flexibility and simplicity to get these loans are why they are so popular.
- They might want to know your experience in property development
- How you will payback
- Check if selling the property would be profitable
- They might check your other assets
If you become the default on the loan, your lender can sell the property to recover the debt or charge large fees as a penalty. This way they end up making more profit than what the borrower will pay in installments.
Do I need to pay any fees?
Yes, you have to pay a fee on the interest. This is one reason why these loans are expensive. The fee may vary but you also need to pay for arrangement fees, property valuation, own legal fees, lender legal fees, and broker fee.
Luckily, you have to pay less if you have enough amount of experience as a property developer. You may have to pay 3% for your first application. That is why it is recommended to evaluate the cost of bridging loan with the benefits you are expecting out of it.
Hope this blog has helped you find a solution to your questions. Bridging loans can help you fund highly profitable projects. Think about your execution plan and evaluate whether the interest rate and fees are worth the investment. You can also get in touch with a financial advisor to help you decide.