Bridging loans are designed to be a short term solution covering situations where a debt is due but the credit to cover it has not yet become available or a permanent solution for property developers and investors to fund their short term development projects. A bridging loan will fill this gap and allow a transaction to progress to completion, preventing the potential collapse of the sale. Belgravia Property Finance source rates from 0.44% per month.
Who Needs a Bridging Loan?
Bridging loans have traditionally been available to property buyers in all sorts of circumstances, including individuals needing to pay for a new home before their current home has been sold. It is now far more common for bridging loan products to be aimed at the asset rich property buyer, property developers, and landlords that want a simple straightforward and quick solution as they turn their properties over.
A New Breed of Lender
Following the credit crunch of 2008, banks have been reluctant to provide these kinds of loans to customers across the spectrum and, as a consequence, a new generation of specialist bridging loan providers have emerged. These specialists also target clients that are buying at auction of fast turnover developers that buy properties to improve them and then sell them again a few months later.
The Cost Effect
The core reason why bridging loans are not ideal for everyone is that they are high-interest loans which can cost from 0.44 – 1.5% per month. Additionally, there are also likely to be some rather heavy administration fees added to that too.
While bridging loans are quite commonly looked at as a funding instrument for buy to let and other property instruments, they have also become more common for the personal homebuyer, because banks and building societies on the high street are simply taking much longer to make lending decisions, when the home loans are larger than average.
Beware of Precarious Lending
For some, this may seem to be an attractive alternative when they struggle to obtain mainstream finance. However, for obvious reasons, this kind of expensive loan is not the ideal solution over a 20-year plan. In fact, it is also possible that those that take a bridging loan while negotiating a high street mortgage can find themselves trapped in a very expensive loan situation if the effort to find suitable high street funding fails for any reason.
If things go wrong you could find yourself having to sell the property and it is important to have an exit strategy when taking the loan out in the first place. These situations make it clear why bridging is ideal for developers and buy to let landlords, but only in very specific circumstances for individual property buyers. Concerns have been voiced that some lenders are far too quick to offer this type of loan to inexperienced and vulnerable customers.
Ask an Expert
It really is important to obtain experienced expert and professional advice when considering this route, whether it is to truly close a gap between finding solutions or turn a property over quickly as a developer or property investor. Even the experienced property developer can sometimes make a mistake.
The idea of consulting with an expert lies not only in the fact that the expert will be able to help you find the best deal suitable for your specific situation, but they will cover several other options that you will need to consider such as your exit strategy and what contingencies you should consider should anything go unexpectedly awry.
Where to Look
It’s always best to use an FCA regulated broker such as Belgravia Property Finance because bridging lenders come in all shapes and sizes and it really is possible for the uninitiated in the world to end up with an unregulated unscrupulous lender. By using a recognised broker, you will have a professional that must comply with professional standards that have an impact on his or her business.
Rather than hunting through the back pages of a newspaper, or in the dark corners of the internet, you may be surprised to find that your broker can recommend a good specialist lender. Of course, the sign of a good broker is certainly one who will tell you when this type of finance is not suitable for you, whether you are in the loan market for personal or business reasons.