For anyone looking to get the best UK bridging loans, the market may appear to be confusing.
That’s because the bridging loans sector has grown rapidly in recent years as a popular form of financing.
Also, High Street lenders, particularly banks, have introduced tighter lending criteria which makes borrowing money more difficult.
But for those who can meet the bridging firm’s lending requirements, then access to large amounts of money on a short-term basis can be done easily and quickly.
Indeed, one of the big attractions for bridging finance is the ability to access any amount of cash ranging from several thousands of pounds to £1 million in just a few days.
Compare that with the lengthy process that most High Street lenders now have for lending money.
Check bridging loan interest rates UK
However, before anyone applies for a bridging loan, it’s always a good idea to check bridging loan interest rates UK that the lender is offering.
The easiest way for doing this is to visit a lender’s website and use their bridge loan calculator which will have the interest rates on display.
It is important also to appreciate that the interest rates being offered will differ between bridging lenders.
For example, the rates will differ according to the amount being borrowed and the term of the loan and the loan’s purpose will also have an impact on the interest rate being offered.
What can a bridging loan be used for?
So, while the interest rates will vary, what can a bridging loan be used for?
Again, the answer is not as straightforward since there are a wide variety of uses for bridging finance and will cover everything from buying property at auction, refurbishing a property a mortgage lender will not lend on and even for a firm to meet a cash flow crisis.
Essentially, with so many bridging loan lenders in the market, there will be a finance firm able to meet your needs.
The main point to appreciate is that the security being put forward for the loan will also have an important role to play.
Indeed, while many lenders can meet the need to deliver cash within a few days, for larger loans there may be a need for more legal work and a survey to be carried out on the property being put up as security; this will delay the application process but only by a week or so.
It is for this reason, that property developers enjoy bridging finance since they can bid on a property at auction and arrange for the finance to meet the completion sale date.
Other property developers may use the money from a bridging loan to refurbish a property into a condition that a mortgage lender will offer a mortgage for; for instance, this may mean adding a bathroom or making a property habitable.
Bridging finance is also a popular route for landlords looking to build their portfolio and for many potential borrowers, bridging offers an ideal short-term financing solution.
Application process for a bridging loan
It should also be appreciated that the application process for a bridging loan is also simpler than that required by High Street lenders.
Also, bridging finance firms have differing criteria so a borrower’s poor credit history may not have an impact since their security for the loan will be strong enough.
It’s also possible to have a bridging loan that the borrower does not have to repay until the loan falls due with their interest added to the final amount; this is known as ‘rolling up’.
It should be highlighted that while bridging finance offers an excellent short-term finance solution with flexible terms and a wide range of purposes, borrowers should have an exit strategy in place so they do not run into financial difficulties.
For the purpose of a bridging loan, an exist strategy is when the borrower knows when they will have the money to repay their loan.
For those who do know when the cash will be available, this is known as a ‘closed’ bridging loan and for those who do not know, for instance, they may not know when their current house sale may go through then this will be known as an ‘open’ loan.
Fees for a bridging loan
While bridging finance is growing in popularity as a short-term way to finance a purchase, it should be appreciated that this isn’t necessarily the cheapest way of obtaining finance and there are fees for a bridging loan to be calculated.
For instance, a borrower’s costs may include arrangement fees which can range from 0.5% and 1.5% of the loan’s total value as well as valuation and survey fees of the property being used as security to ensure its value. There may also be legal fees for legal documents.
Some lenders also have redemption penalties for when a borrower repays their loan before the agreed term.
On top of this, there may also be a broker’s fee to pay but they will be giving you sound advice and negotiating with the bridging lender on your behalf.
Indeed, it is important that the advice you receive about bridging loans is tailored to your own needs; whether you are looking for buying property, including commercial units and shops, or wanting to refurbish a property for a quick sale; sound advice is key.