Many landlords are using bridging loans to raise short-term finance because they have been turned down for other loans, says a Property118.com article from September 2017.
The Bank of England has introduced tighter lending rules for landlords applying for commercial mortgages. These restrictions particularly affect portfolio landlords – those with four or more mortgage properties.
Mortgage brokers are sometimes unable to find a buy-to-let mortgage for landlords. One of the main reasons for this is because the lender assesses that the landlord will not be able to afford the mortgage repayments. Others are turned down because of a bad credit record.
If a client is refused a buy-to-let mortgage, an alternative is to look at bridging finance. As bridging loans are short term, they are not suitable for all situations, but can be useful for matters like renovating, refurbishing and property development.
One advantage of bridging loans is that they are quick to arrange. Landlords that successfully apply for a commercial mortgage can experience delays in the money being available, but if a property deal is time sensitive, a bridging loan can be swiftly arranged to complete the deal, then repaid once mortgage funds are available.
The drawback of a bridging loan is that that the interest rate is usually higher than a mortgage – a price paid for the convenience, speed and flexibility of the service.
In a recent survey, 75% of bridging finance brokers said that they had arranged an increased number of bridging loans in 2016 compared to the previous year, and the majority expect a further rise during 2017.