For anyone interested in bridging loans UK but who is unsure as to what they are and how they work then this quick guide will help.
Essentially, a bridging loan is simply a short-term financing option that enables someone to access money before a source of income arrives – this is known as ‘bridging the gap’.
Most people are aware of bridging loans being useful to finance the buying of a property before they have sold their current home which is when the sale proceeds will then be used to repay the bridging loan.
However, it should be appreciated that bridging loans are being used for a wide variety of purposes including buying property at auction, for instance, and for businesses to buy stock.
Bridge loan funding solutions are being used by landlords
Bridge loan funding solutions are also being used by landlords to start a portfolio or to develop one.
They are also used by property developers to buy a property that a mortgage lender will not lend money on and also for developing a property that will be quickly sold on.
The big attraction for bridging loans is that they can be arranged quickly, certainly much more quickly than a mainstream lender can do, with the loan being secured against an asset such as a property or building.
As with financial arrangements, it’s always advisable to carry out thorough research and ask questions of a potential lender before committing to a bridging loan.
Allow a short term bridge loan to have its interest ‘rolled-up’
Another attraction is that some lenders will allow a short term bridge loan to have its interest ‘rolled-up’ so there are no monthly repayments to be made on the loan until it needs to be repaid.
This quick bridging loans UK guide should also mention that there are two types of loans available, one is a closed bridging loan, whereas the other is an open bridging loan.
The difference between the two is that a closed bridging loan has a clearly defined exit for when the loan will be repaid; for someone buying a property for instance, the day the contracts are exchanged will probably be the date when a bridging loan will be paid.
For an open bridging loan, the lender has no set date for the exit but they will expect the loan to be repaid within a set period. Open bridging loans are the most common type since the borrower might be using the money to refurbish a property for selling on.
Potential bridging loan borrowers also need to appreciate that bridging loans will run from several days for up to two years and from several thousand pounds to several million – depending on the bridging loan lender’s criteria.
For any help or advice about bridging loans UK then the helpful team at The Bridge Crowd will be able to help.