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In the UK financial landscape, bridging loans have carved a distinctive niche, providing swift financial solutions in situations where traditional financial avenues might not be viable. As an experienced Bridging Finance Advisor, I am here to delve deep into the intricacies of this financial instrument, shedding light on its potential benefits and how you can leverage it in your property pursuits.
Last Updated:
21.08.2024
Written by:
Phil Greenwood
Ascot Bridging Expert
Last Updated:
21.08.2024
What Is A Bridging Loan?
A bridging loan, essentially a short-term loan, acts as a bridge to cover an immediate cash need in anticipation of a future guaranteed payment. Typically lasting from a few weeks to a couple of years, these loans have higher bridging loan rates compared to traditional mortgages due to their short term nature. The interest on a bridging loan can be serviced monthly, rolled-up, or occasionally, deducted from the loan at the onset.
Who Are Bridging Loans for?
Primarily, bridging loans cater to property investors, developers, and sometimes, homebuyers. These borrowers find a bridging loan as a viable tool when they require rapid funding to secure a property or facilitate renovations before availing a traditional mortgage or selling another property. It is an optimal solution for those looking to bridge the financial gap quickly, albeit at a higher rate.
Types of Bridge Loans
Understanding the different categories of bridge loans is pivotal in making an informed borrowing decision. Here we explore these types:
Closed Bridging Loan
A closed bridging loan has a fixed repayment date, typically aligned with the sale of an existing property or another confirmed financial incoming. Given that there’s a clear exit strategy, lenders perceive it as less risky, potentially offering slightly lower interest rates compared to open bridging loans.
Open Bridging Loan
An open bridging loan doesn’t set a fixed repayment date, offering flexibility in repayment. However, this comes with higher interest rates as the lender faces more uncertainty regarding the repayment.
First Charge and Second Charge
First charge loans are registered first on the property, holding precedence over any subsequent loans. In contrast, a second charge is subordinate to the first charge, meaning it is repaid only after the first charge loan is fully settled.
Fixed or Variable Interest
Borrowers can choose between a fixed interest rate, offering predictability in repayments, or a variable interest rate, which fluctuates according to market dynamics.
What Can I Use a Bridge Loan for?
Bridge loans can serve multiple purposes in the real estate sector, including but not limited to:
Buying Property at Auction
With a bridge loan, you can quickly secure funds to purchase property at an auction, giving you a competitive edge in such high-paced environments.
Renovation
Bridge finance can facilitate the refurbishment or renovation of a property, allowing you to enhance its value before sale or re-mortgage.
Purchasing Land
A bridge loan is a suitable option for purchasing land swiftly, especially when you intend to develop it and sell or refinance shortly.
Fixing a Broken Property Chain
In instances where a property chain breaks, bridging finance can rescue the situation by providing the necessary funds to continue with the purchase, ensuring the chain is maintained.
Phil Greenwood
Ascot Bridging Expert
The Mysteries of Bridging Loans
What Our Expert Says...
Bridging loans, often regarded as the ‘Bridge Financing’ in the property world, offer a swift solution when traditional financing might not fit the bill. Ideal for those short-term gaps in funding, they ensure you don’t miss out on property opportunities. However, they come with their own fees and costs. It’s essential to understand the costs, terms, and conditions before diving in. I’m always here to help with the right decision, ensuring you navigate these financial tools with confidence.
How to Get a Bridging Loan
Securing a bridging loan involves approaching a lender with a well-laid plan showcasing your repayment strategy, the property details, and your financial standing. Since bridge loans cost can be high, demonstrating a robust exit strategy — such as a property sale or refinancing into a long-term loan — is vital. Employing the services of a skilled broker can facilitate a smoother process.
Is a Bridging Loan Right for Me?
Deciding on a bridging loan hinges on your financial circumstance, the urgency, and your repayment strategy. It would be best to consider the high bridging loan rates and additional fees such as valuation fee, legal fee, and potential early repayment charges before making a decision.
How to Compare Bridging Loans
Comparing bridging loans entails evaluating various loan terms, interest rates, and fees from different lenders. You should scrutinise the loan-to-value (LTV) ratio, the lender’s reputation, and the potential for hidden fees. Leveraging comparison tools and seeking advice from experienced advisors can aid in making an informed choice, helping you find a loan tailored to your needs, considering every vital aspect including the bridge loans cost and the potential for early repayment. It is imperative to pay heed to the loan’s details to strike a balance between the cost and the benefits it brings to your property venture.
Apply for a Bridging Loan
Get things moving, apply for a bridging loan.
Free unbiased bridging loan advice is just a phone call away.
FAQ
Typically, a bridge loan can be arranged within a few days to a couple of weeks, depending on the complexity of the loan. Our experienced team are here to help guide and advise you through the process.
While credit history is a factor, bridging loans are mainly secured against property, making it possible for individuals with bad credit to obtain one. With our expertise we can help explore your options together.
This can vary based on your circumstances and the lender’s criteria, but typically, you’d need around 25% equity in your property. If its an undervalue purchase some lenders may offer 100% lending of the purchase price.
Bridging loans can be a helpful tool when you need fast, short-term finance, but they may not be suitable for everyone due to their higher interest rates. Discuss with our helpful, knowledgeable staff to see whether this is a viable solution for you.
Alternatives could include traditional mortgages, personal loans, or specific products like development or commercial loans.
This depends on your unique financial situation, your needs, and the specific timing. Our team is on hand to help you make the best decision based on your circumstances.
Interest rates for bridging loans can vary, typically from 0.50% per month. This depends on factors such as the loan amount, term length, and your personal circumstances. Contact our experienced Advisors to help you understand what rates you might expect.
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In need of a bridging loan? Look no further than Ascot Mortgages! Our team of experts specializes in bridging finance and can provide you with a range of options. Whether you need short-term financing for a property purchase, renovation, or bridging the gap between property sales, we have the ideal solution for you. Contact Ascot Mortgages today to discuss your bridging loan requirements and secure the funds you need quickly and efficiently.
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Legal
Ascot Mortgages authorised and regulated by the Financial Conduct Authority and can be found on the FCA register (www.fca.org.uk) under reference 776062. The FCA do not regulate some forms of mortgages. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £599 per mortgage account. Ascot Mortgages Ltd give you the option to pay a non-refundable fee of £1299 payable with the application. If this option is taken, Ascot Mortgages Ltd will refund any procuration fee received by the lender.
Ascot Mortgages Limited is registered in England and Wales and have their registered office at 8 Webster Court, Westbrook, Warrington, WA5 8WD. The company’s registration number is 06764971.
We are a credit broker, not a lender. We work with the whole of the lending market. We may receive commissions that will vary depending on the lender, product, or other permissible factors. The nature any commissions model will be confirmed to you before you proceed.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT
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