What are bridging loans and how do they work?
Bridging loans have various uses but are in essence a method of borrowing funds for a short term, i.e. to Bridge a gap
Some bridging solutions;
Complete the purchase of a property before the sale of existing home completes, thus breaking a stalled sales chain and getting moving again.
A property investor may use a bridge when buying a property; if the property is not suitable to live in it will be ‘un-mortgageable’ and so they will either use their own funds to complete the renovation or a ‘bridge’.
Additionally property investors may be buying at an auction, this will usually require a fast completion and full payment. Bridging is ideal for this scenario.
As banks and building societies have grown more reluctant to lend in the wake of the financial crisis, there has been an influx of bridging lenders into the market. However, rates are generally higher than Mortgages and there can be hefty administration fees on top. They are, however, a very useful tool enabling a purchase under otherwise difficult circumstances.
Some common bridging loan Myths: –
1: They can only be used for property purchases
Bridging loans offer much more flexibility than just funding property purchases. They can also be used for unexpected expenses, renovations, new business ventures, or even buying land. Their versatility makes them an appealing option for addressing a broad range of financial needs.
2: Only experienced property investors can access these loans
In truth, they are accessible to a diverse range of borrowers, including first-time property buyers. If there is a clear plan for repayment, bridging loans can be a viable option for many individuals, not just experienced investors.
3: They are only used as a last resort
Bridging finance is often a go-to option in time-sensitive situations, such as buying property at auction. It’s designed to be a flexible and convenient choice rather than a last resort.
4: It’s only for those with perfect credit scores
While a strong credit score helps, it’s not the only factor lenders consider. So, even if your credit score isn’t perfect, you may still qualify.
5: They take too long to process
Bridging loans are designed for time-critical situations. Unlike some other types of lending that can take weeks to process, bridging loans can be completed in just a few days, especially when you are keen to move forward and have a clear exit strategy.
6: Bridging loans are more risky than other options
While all loans involve some degree of risk, bridging loans are not necessarily more risky than other types of financing. Risks can be managed with a solid repayment strategy and thorough understanding of the terms. We ensure our clients are well-informed and prepared, making bridging loans a valuable financial tool.
If these insights suggest that bridging loans might be suitable for you, please feel free to contact us either by phone [07850 825291] email chris@bigskyfinance.co.uk or via the enquiries page.
Now could be an excellent time to address your plans.