All About Bridging Loans

When you have a short period of time in which to make a purchase then you will need to make sure that you can secure funding quickly. This often occurs when you want to buy a piece of property but need to come up with the funding immediately because you have a lot of competition or a short period of time to take action. While obtaining a traditional mortgage or participating in a property chain can involve a long wait period, if you use bridging finance you may be able to close on amounts up to £25m in just three weeks.

To obtain a bridging loan you have to have security, such as a business or commercial or residential property, and you also have to have an exit strategy for how you will repay the loan.

When to Use a Bridging Loan

Generally people use bridging loans so they can buy a piece of property. This makes it possible for homeowners to buy a new home before they have sold their old one so that they can complete the purchase in a short period of time. When they sell their first home they will be able to pay off the bridging loan.

Bridging Loans
Property developers benefit from bridging loans as well and can use this money to purchase a flat, office, or home. With the resulting funds they can then improve the property and start to let it. It’s then easy to pay off the loan or refinance it once they have let the property or if they decide to sell it.

You only have about 28 days to come up with the money you need to fund 90% of an auction property when buying it. This loan is perfect for helping you close the gap between how much money you have and how much you need so you can complete the purchase.

Bridging loans benefit companies who are in a stage of growth, because they can be used to buy new space, pay a marketing company, or even hire staff. As long as you have security for a bridging loan, you can use it in a number of ways.

What Fees to Expect

You will have to pay interest on the bridging loan beginning around 0.44% each month up to around 6%. The actual amount you have to pay will vary depending on the terms, the criteria, and the opportunity. While lenders may vary, the maximum duration for a bridging loan is generally just 12 or 18 months.

You do need to be prepared to pay other fees than just the interest, including:
  • Possible early exit fees
  • Broker fees up to 2% if you use this expert
  • £400-£1,000 in valuation and surveyor fees
  • £1,000+ in solicitor fees
  • 0%-2.5% in procurement fees
More About the Industry

The UK has about 40 bridging lenders and these comprise an industry that is worth around £4bn. Some of the main lenders include Masthaven, Precise Mortgages, and West One Loans. You can easily find thousands of bridging brokers to help you find a deal for your bridging loan.

You can borrow between £50,000 and £25m, but there are some lenders who may be able to lend you more money. The Financial Conduct Authority regulates this industry and has 33 regulated lenders as well as some who are non-regulated. Unregulated lenders do not have to run credit checks on their applicants and can only lend on properties that are for buy-to-let or lend for second charge mortgages. Regulated lenders, on the other hand, run credit checks as well as affordability checks for every borrower and can lend first charge mortgages. 

This article was provided by BridgingLoans.co.uk.

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