Put simply, for those who want to know how to access UK bridging loans, then this is a way to borrow large amounts of money for a range of purposes.
Usually, the bridging loan enables the borrower to buy a property while selling their current home.
This means that the bridging finance will ‘bridge the gap’ between buying the property and having the money to pay for it when the sale completes.
However, as an alternative form of financing, bridging loans have grown hugely in popularity over recent years, with borrowers using the cash to pay a tax demand, for example, to refurbish business premises and even settling a divorce.
Others use bridging loan facilities to buy property at auction and refurbish it before selling it on quickly.
Bridging finance is also attractive to those who may not be able to access a mortgage since the loans are backed by a security property which may appeal to many.
How does a bridging loan work?
So, how does a bridging loan work? They are short-term loans usually between one month and 18 months, but some lenders offer the facility for up to two years.
And since building societies and banks have become more reluctant to lend in recent years, a growing number of bridging lenders have appeared to meet demand.
One of the big attractions is that a loan can be approved within a few days and some lenders, if they know who you are, can take 24 hours which is a boon for those who want to buy property at auction, for example, or want to invest in buy to let property.
However, the approval timescale will vary since various lenders will have checks to complete and for the security property to be valued.
On average, it can take up to two weeks for an application to be completed, which is much quicker than the several months it may take for a high street bank or building society.
Bridging loan interest rates UK
Potential borrowers need to appreciate that while bridging loans are quick to organise, the bridging loan interest rates UK can be high and there are administration fees to pay as well.
Borrowers also need to know that when they consider a bridging loan application, the interest rate is being expressed on a monthly basis – so for a 1.5% a month bridging loan, the APR (annual percentage rate) is 18%.
As mentioned, there are other fees to pay including an arrangement fee and some lenders have an exit fee too.
There will also be legal fees – both the borrower and lender will incur solicitors and legal costs, plus there will be the valuation fee.
This will be the cost of a surveyor carrying out a valuation of the security property and these fees will vary though this will need to be paid upfront before the bridging loan is agreed.
Bridging loan example
To put this into perspective, this bridging loan example explains the cost of borrowing £100,000 over agreed terms. The monthly interest rate for this example is 0.65%.
Over one month, a £100,000 bridging loan will have interest of £657 and fees of £2,030, which means the total to repay is £102,687.
Should someone be interested in a bridging loan for 12 months, then the interest charges will be £7,884 and the fees will amount to £2,030. This means that the total to repay is £109,914.
It’s always worth shopping around when sourcing the best bridging loan and borrowing the same amount with an interest rate of 1.3% effectively doubles the amount being charged in interest for the loan.
Considerations for UK bridging loans
Other considerations for bridging loans is to understand whether you need a ‘closed’ or ‘open’ loan.
To know the answer, then if you know when you will have the funds available to repay the loan, this will be a closed bridging loan because you know when the exit date will be.
If you don’t know when you will have the funds available, this will be an open bridging loan which tends to have slightly higher rates of interest because you offer a greater risk to the lender.
It also needs to be appreciated that the amounts that a borrower can apply for will range from several thousands of pounds to several millions of pounds – it all depends on the value of the security property that is being used.
As a means to access flexible borrowing to meet a range of purposes, then a bridging loan UK may offer the financial solution that you may be looking for.
For more help and information about how you can access UK bridging loans, then you need to speak with the experts at The Bridge Crowd.