Bridging finance is about short-term loans. The term ‘bridging’ is used because these loans are usually used to bridge the gap between the need for funds to be available quickly and the completion of a long-term loan.
Completing property purchases
Most bridging loans are used to purchase property. A typical example of this is where a buyer needs to purchase a new house but has not yet sold their existing one. Bridging finance is used to complete the purchase and then will be repaid once the sale of the existing house goes through.
Another area where bridging finance is useful is when purchasing properties at auctions. Most auctions require a 10% deposit to secure a winning bid and then expect the purchase to be completed in around four weeks. Even if a buyer has had a mortgage application approved, it can take longer than four weeks for the funds from a standard mortgage to be available.
Many property developers purchase property in derelict or semi-derelict condition so that they can renovate it and then sell it to make a profit. Many mortgage lenders will not provide a mortgage for property that is not fit to live in. A bridging loan can provide the necessary renovation funds.
Commercial bridging loans
Businesses can also use bridging loans to raise short-term capital. This can be used for such means as purchasing equipment, expanding business premises or purchasing stock. Some businesses are seasonal and may find that there are times of peak income and periods when income is low. A bridging loan can be used to pay the bills during quiet periods until business picks up.
Should you take out a bridging loan?
The main thing to consider before applying for a bridging loan is having what is known as an exit strategy. This simply means that you need to be clear on when and how the loan will be repaid. If you have had a mortgage application approved, and are using a bridging loan to complete a property purchase, then the exit is straightforward. You will be expected to repay the bridging loan as soon as the mortgage finds are available.
Bridging loans can last from two weeks to three years and, unlike with a mortgage, there are no exit fees for early repayments. Interest rates are usually higher than conventional mortgages or loans. If you are relying on the sale of a house in order to repay a bridging loan, then you need to be certain that you will find a buyer for your house.
Find out more
It can be difficult to obtain a bridging loan with traditional high street banks and building societies, but there are a number of specialist lenders. At Ascot Mortgages, we have access to a number of bridging loan deals.
For more help and advice about bridging finance, and to arrange a loan, talk to Ascot Mortgages who specialise in matching their clients’ needs to the best bridging loan.