While they may be growing in popularity, many people still don’t understand what bridging loans UK are for.
Essentially, a bridging loan is providing a short-term funding option for the borrower.
They are also used for a wide variety of purposes though many borrowers tend to use them for property transactions.
Also, they tend to be more flexible than a bank loan but there are some advantages to this, the main one being the quick processing time before receiving money.
So, what is a short-term bridge loan for?
The short-term bridge loan was designed to help those who were buying a house before they sold their current home by offering a short-term loan but at a slightly higher rate of interest.
This means the borrower could purchase their new house while knowing that the funds to repay the bridging loan would arrive in their account by a certain date,
In addition, bridging loans are often used bu those who want to sell a property after using bridging finance to buy and renovate it and the funding can also help developers buy property at auction.
For those who buy property at auction then they can bid on a potential home and then apply for the bridging loan knowing that the application will be processed in time to meet the buying deadline.
Another reason why bridging loans UK have grown in popularity is that in recent years, particularly after the financial crisis, building societies and banks developed stricter lending criteria.
This means that mortgages and loans were harder to come by but the demand for these did not go away so growing numbers of people opted to access this alternative form of finance.
In addition, the number of bridging loan lenders entering the market has grown substantially in recent years.
Potential borrowers also need to appreciate that in addition to paying slightly more in interest, bridging loans also carry administration fees that must be paid.
Who will be interested in bridge loan funding?
In addition to those buying property while selling their home and property developers, there is also a growing trend for landlords and amateur property developers to access bridge loan funding.
Others may simply want funds if they are asset rich or wealthy borrowers and want a straightforward loan to purchase a residential property.
There are also instances of some people borrowing with a bridging loan as an alternative to borrowing from a bank.
However, while there are lots of attractions for taking out a bridging loan, the borrower must appreciate what their exists strategy will be. The bridging lender will be asking them for this.
There are two types of strategy available and one is to opt for an ‘open’ bridging loan which means the borrower does not have a definitive date for repaying the loan itself.
The alternative is for a ‘closed’ bridging loan which is when the borrower does have a date in mind for when they can repay the bridging loan.
Also, it is possible to not pay interest or indeed repayments during the loan’s term and this means these charges will be rolled-up into the final payment.
Attractive proposition for many bridging loan borrowers
Again, this is an attractive proposition for many bridging loan borrowers.
However, another issue that potential borrowers need to bear in mind, as well as administration charges, is that there will often be legal fees and additional admin fees to pay.
This means that the cost of a bridging loan can quickly mount up before the money has even been received.
The other attractive reason for people being interested in bridging loans is that the amount that can be borrowed can vary hugely; some people may simply need a few thousand pounds while some lenders will forward several million pounds. A lot depends on the purpose of the loan and the security being put up for it.
It also needs to be appreciated that bridging loans are not meant to be a long-term financial solution and the loans themselves will last for a few days or weeks and up to two years; most lenders will not lend the money for more than 12 months.
Despite this, the bottom line is that with the possibility of securing a large amount of money in just a few days means that there will be a demand for bridging finance since it can be used for a wide range of purposes and with a growing list of potential lenders means that those who are determined to secure a bridging loan will probably find a suitable lender.
As with all financial transactions, seeking independent financial advice is always recommended.
However, for more information about understanding what bridging loans UK are and what they can be used for, then contact the helpful team at The Bridge Crowd.