When it comes to finding the best UK bridging loan available, then careful research is necessary and this article will help explain why.
Traditionally, bridging loans were used to help someone fund a purchase until the money for it arrived in their bank account.
Most people will have heard of bridging loans when they needed to buy a home but were in the process of selling their current property; this means they can buy their new home because they know when the sales proceeds will be in their bank.
However, the range of uses has now grown in recent years to include buying property at auction, a business buying stock for a promotion and property developers looking to bring a property up to mortgage standard.
Bridging loans should be seen as a secured loan because you will need to own a property, land or a high-value asset in order to access funding.
Bridging loan UK is popular with property developers
It’s for this reason that a bridging loan UK is popular with property developers and landlords but others, particularly businesses, are also accessing the finance because it’s quick and flexible to arrange.
It’s also possible to access a loan from several thousand pounds to several million pounds depending on the borrower’s criteria and the security being used.
Another issue about finding the best UK bridging loans is that there are lots of finance providers currently operating in the market so competition has grown hugely and with this competition.
Among the list of potential providers is the Bridge Crowd and they have a helpful team who can help explain what a bridging loan is and what it can be used for, including how much they will cost.
There will be a number of terms that potential borrowers may not have heard of and two of the most important include an ‘open’ bridging loan and a ‘closed’ one.
Should a lender discuss an open bridging loan, they are talking about finance that has no set end date and can last for 12 months, but sometimes up to two years. With an open loan, they can be repaid when the borrower has the funds available.
The alternative type of bridging loan is described as a closed since it has a fixed end date when the loan must be repaid.
No set bridging loan rates UK
Borrowers will also see that there are no set bridging loan rates UK since these will vary depending on the borrower’s criteria but open bridging loans tend to be more expensive because they offer more flexibility.
Whichever type of bridging loan you decide is for you, it’s important that you have what is known as an ‘exit route’; this is a way to describe how you will repay the loan and when.
So, when it comes to finding the best UK loan lender you’ll need to check their loan-to-value ratio to ensure it will meet your needs and, more importantly, have security for the loan itself.
That’s because a bridging loan is a secured loan and the money is tied to the value of the security. It’s also important to appreciate that the security property will need to be valued by an independent surveyor and they will need to be paid separately.
Also, when researching which potential bridging loan lender may be suitable for you, then your choice may be restricted over the charges that may be held over your security.
Bridging loan lenders
Essentially, this means that some bridging loan lenders are only interested in first charge loans as their loan will be the first or only borrowing that is secured against the property. For example, a mortgage will be seen as a first charge alone.
There are other lenders who will be happy to take a second charge against the property which means that whoever has the first charge will be paid first and their money will come second.
These elements also dictate how much you can borrow with a bridging loan since the value of the land or property being used security will need to be valuable.
Another issue to consider is the rate of interest being charged by the lender. For some, bridging finance can be expensive because it is quick to arrange, flexible and generally used for short-term needs.
It’s also important to appreciate that the rate of interest being quoted is not an annual percentage rate (APR) but is charged monthly.
Interest on a bridging loan
The interest on a bridging loan is charged in one of three potential ways:
- Monthly interest
With monthly interest bridging loans you will be paying interest every month and it’s not added to the loan’s balance.
- Deferred or rolled up interest
With deferred or rolled up interest in bridging finance, you will not be paying interest until the end of the loan’s term when the loan is repaid.
- Retained interest
In some cases, you can borrow the interest on the loan from the bridging loan provider to help cover the monthly interest repayments, this is usually for a set period of time. Everything is then repaid when the loan’s term ends.
It’s also possible that with the flexibility of bridging finance lenders that a borrower could have a combination of any of these options so, for example, they may opt to retain interest over the first six months of their loan and then switch to paying the interest monthly.
Finally, there are a variety of other fees that may be charged including the surveyor’s fee, administration charges, and some lenders may also have exit fees when the loan is repaid. It’s important to understand all of these terms before agreeing to a bridging loan.
If you or your business are looking to find the best UK bridging loan providers then contact one of the best today – the team at the Bridge Crowd.