There is still some confusion over short term bridging loans and what they can be used for and even what bridging finance is. Here we explain more and offer tips to secure the bridging finance to meet your needs.
Used properly, a bridging loan will enable someone to access a large amount of cash quickly to fulfill a particular need, whether that’s buying a property or paying an unexpected bill, such as a tax demand.
The market has matured in recent years and there’s a wide range of bridging finance firms available with the team at The Bridge Crowd happy to answer any queries you may have.
So, here is our quick guide with tips about this type of finance.
What are short term bridging loans UK?
Short term bridging loans UK are a type of financial product with the borrower offering a security property to access the cash. The amount a lender will loan is determined by the property’s value and they will take a charge over the property as security.
How does bridging finance differ from a mortgage?
The major difference between bridging finance and a mortgage is that a mortgage will be taken out for 25 years or even longer while bridging finance is usually for 12 months or less. Some lenders offer loans for up to two years.
Bridging finance also tends to be more expensive but they are easier and quicker to access.
For most bridging lenders, an applicant’s personal income is not a major factor and some will not carry out a credit check. Some lenders will simply loan money on the value of the security property regardless of its condition.
Why should borrowers use bridging finance?
As mentioned, bridging finance tends to be dearer than obtaining a mortgage and it’s for a shorter loan term, so there must be good reasons as to why they’ve grown in popularity.
And there are. Bridging finance is particularly popular with property developers who can access a large amount of money quickly, refurbish a property and then sell it to repay the bridging finance before the loan falls due.
Also, accessing bridging finance is quicker and can be done in days or weeks rather than the several months a mortgage firm will allow.
For example, an investor can bid on a property in an auction and be reassured that they will be able to meet the auctioneer’s deadline with bridging finance in place.
The bridging loan calculator explained
To help potential applicants understand bridging finance, most lenders will have a bridging loan calculator to illustrate how much the loan will actually cost.
There are a number of factors you will need to appreciate, including the length of the loan, how much it’s for, the value of the security property and whether you know when the loan will be repaid.
This last issue is an important aspect for those who want to enjoy the lower rates of interest on their short-term bridging loan.
Essentially, if you know when you’ll have the money to repay the lender, then this is known as a ‘closed’ bridging loan.
If you don’t know when you will be able to repay, then you’ll have an ‘open’ bridging loan, which tends to cost slightly more.
The bridging loan calculator will also illustrate the firm’s administration charges, including the surveyor’s fee to carry out an independent survey of the property.
Another important tip when you need a short-term bridging loan is to shop around. You’ll find that it’s difficult comparing lenders deals on a like-for-like basis because the fees will vary as well as the rate of interest.
This can be a confusing situation but the team at the Bridge Crowd can explain more.
Exit fees for a bridging loan
Another important tip to appreciate is the question of exit fees for a bridging loan.
Not every lender will have an exit fee which will be levied at the end of a loan so you should be aware of this.
However, it is possible to roll up the interest so you don’t make any repayments until the loan falls due.
Or, you can repay the interest every month, as you would do with a mortgage, to repay the loan in full. Some lenders may offer to withhold the interest and deduct it from the advance.
Attractions for bridging finance
Finally, as mentioned earlier, one of the big attractions for bridging finance is that the money can be accessed very quickly.
This is particularly the case if you already have a relationship with the lender and they could turn around an application in just a few days.
Most borrowers will be looking at a week or two on average – depending on how long it takes to get the property surveyed.
If you would like more help or tips for short term bridging loans, then you need to speak with the experts at The Bridge Crowd today.