Bridging finance is becoming a more popular source of finance for those looking to raise money for a property purchase under a tight deadline.
The bridging industry has increased from £1 billion to £7 billion since 2011 and there are currently around 40 lenders in the industry. There are different circumstances in which you would decide to use bridging finance and we take a look at some of the most popular reasons for doing so.
Bridging loans explained
Bridging finance is a type of short-term loan that can allows the borrower to access money quickly and is most commonly used by property owners, developers and investors in order to be able to refurbish a property, or to move into a new property whilst waiting for their current property to be sold.
Customers and businesses can borrow between £50,000 to £25 million with different rates and loans to value available for different circumstances.
Many loan providers will also consider people even if their credit score is less than perfect, since you are using property as collateral and leveraging its value in order to borrow finance, explains Tiger Bridging.
If you are property developer
Bridging finance can be an excellent option if you are a small (or large) property developer who is looking to refurbish a block of flats or an individual property to then sell off at a higher price, but needs to borrow money quickly. This is because accessing bridging finance can be accessible in around 2 to 4 weeks, compared to a mortgage which could take several months. “Accessing funds speedily enables you to be able to get on with renovating the property as soon as possible, meaning that you do not need to experience unnecessary delays,” explains Mike Smith of Business Expert
If you are moving home
Many people decide to access this kind of funding because they haven’t sold their current property, but they are very eager to complete on a new one, otherwise they risk losing it entirely. This kind of loan enables homeowners to get money quickly to purchase the new house and then be able to repay at a later date when their other property sells.
For example: if you have an outstanding mortgage that is worth around £100,000, are intending to move into a house that is worth around £400,000 in total, (but your current house is worth an estimated £200,000) you may not be sure what to do if you are looking to get access to funding rapidly.
A mortgage will be out of the question, as this can take weeks, and selling of your current home may take time. This is one of the most common reasons as to why bridging finance is used, as it helps to ‘bridge’ the gap between selling and completion, meaning you are still able to obtain your dream home.
If you currently have an existing mortgage or bridging loan (otherwise known as a first charge mortgage) and have equity that is left over, this can then be used to obtain another loan, which is another scenario in which bridging finance will be used by homeowners. People may decide to do this in order to raise additional finance for an investment opportunity (for example, putting money into another property in order to renovate it, or to invest money into a business).
Bridging finance is always secured against a property, either first charge or second charge. Customers must be warned that this is a slightly more expensive source of finance compared to a traditional mortgage and they run the risk of their property being repossessed if they cannot keep up with repayments long-term.
The industry is regulated by the Financial Conduct Authority