If you’re looking for a checklist to access a UK bridging loan because you may be looking to invest in and develop a property, for example, then you’ll need to understand and appreciate the pros and cons before doing so.
Essentially, a bridging loan will offer an investor a short-term borrowing solution and this type of alternative finance is not just aimed at those wanting to invest in property.
Instead, the number of purposes for bridging finance is literally endless and will include:
- A business wanting to invest in new stock
- A business owner wanting to buy premises
- Paying an urgent tax bill or a divorce settlement.
However, most people will appreciate that bridging loans were mainly used to buy a property while the homeowner sold their current home.
One reason why this type of alternative finance has grown quickly in popularity is that the traditional lenders in the UK have tightened their lending criteria so it is more difficult to access finance, including mortgages and loans.
For property professionals, bridging loans enable them to continue developing and investing in property and they offer lenders the necessary security should they fail to repay their loan.
But what is a bridging loan UK?
The big difference when it comes to understanding a standard mortgage and a bridging loan is that a bridging loan UK is only a short-term option.
While a traditional loan could stretch for more than 25 years, it’s usual for bridging loans to last up to one year. There are lenders willing to offer up to two years.
So, why should property professionals consider a bridging loan? One of the main attractions is that a bridging loan can be used to buy or develop a property that may not attract a standard mortgage.
For example, the property may not be habitable or have an indoor bathroom until the developer puts one in.
This then brings us to the types of bridging loans are available in the UK which are:
- A closed bridging loan
When you begin the process to access bridging finance, you’ll be asked about your ‘exit route’. This simply is a way of finding out how you will be able to repay the loan and if you do know then you will be offered a ‘closed’ bridging loan.
A closed bridging loan will attract a lower rate of interest and a developer may already have long-term financing in place, such as a mortgage, once the property has been renovated.
- An open bridging loan
For those who do not know when and how they will have the money to repay their bridging finance, then you will be offered an ‘open’ bridging loan. And since there’s a higher risk for the lender, these tend to have higher rates of interest.
Bridging loan rates UK
It is also important to consider what the bridging loan rates UK will be for your borrowing and there’s an easy way to find out what these could be since most lenders will have a bridging loan calculator on their website for this purpose.
These are easy-to-use and will require some information, including details of how long you need to finance for and whether it’s an open or closed bridging loan that you are after.
For example, if you’re seeking a bridging loan for property development then you’ll need to have a good idea of the budgets involved and when you’ll be able to repay the money to complete the calculator.
The form will also reveal how much of an administration charge the lender will impose and you also need to consider the extra fees for paying an independent survey to value your security property and there may be legal charges as well.
There is no doubt that since this type of alternative finance has taken off, competition among bridging loan firms in the UK has become stiff. Plus, it’s always worthwhile finding a lender to meet your needs and among the reasons will be:
- Not all bridging loan lenders will have the same range of interest rates
- Some lenders will have different lending criteria
- Lenders will have a quicker application process than high-street banks, for example.
- Interest rates will vary according to how much you want to borrow and how much the security deposit is worth.
This last point is important since lenders will have different loan-to-value ratios that they will lend to which means some lenders may only offer several thousand pounds, while others may offer up to £1 million.
Access a UK bridging loan for property investment and development
There’s a lot to consider when you want to access a UK bridging loan for property investment and development, and it’s always worth speaking with experts who understand how this market works – which means contacting the team at The Bridge Crowd today.