Ultimate Guide to the Bridging Loan Market

Nowadays, a lot of people are investing in the property market. If you are new to bridging loans, then this guide will help you understand bridging finance.

UK Bridging Loans

bridging financeAs you probably know, these are short-term loans with repayment duration of between 1 and 12 months. Also, they are secured against the second or first charge basis. The fact that they are secured against property means that they are non-status with no proof of income or credit checks required. It is possible to get a loan that is 100% of the property value. However, in most cases, you will be financed with 70% of the property value. The property can be an investment, land, commercial, or residential.

If you have adequate equity in the property, then the loan interest and other associated fees can be settled or rolled up at the end of the loan term. The interest rates for the bridging loans can reflect the risk of lenders against the property. Thus, the higher the loan to value, the higher the interest rate you will pay.

You can arrange bridging loans through banks, specialist brokers, and private finance companies. Usually, banks are conservative when it comes to lending whereas brokers are quick and are not concerned with the borrower’s proof of earnings and previous credit issues.

Reasons to Apply for Bridging Loans

The idea behind bridging loans is based on the speed at which money is required. For instance, these loans can be approved within a few days. The following are the reasons or uses of bridging loans:

  • Purchasing property at an auctionbridging loans
  • Buying undervalued property where vendors want to make a quick sale
  • Stopping house repossession
  • Raise money for the legal settlements
  • Pay taxes

Misconceptions

The common myth about this type of financing is that it is expensive. This makes borrowers confused about the payments. The truth is that with a bridging loan, the borrower is aware of the outstanding balance and the redemption value. Also, there are no upfront fees and the interest rates are low. In most cases, the rates are based on your application, speed of completion, and client status. A valuation is needed and paid for by the borrower. Ideally, you will be required to pay a completion fee of about 1% of the loan amount.

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