Fundamentals of Bridging Loans

Bridging loans can provide you with a short-term, fast and straightforward funding solution for your cash-flow requirements. No matter what your situation is, whether you are self-employed or not or even if you are embroiled in IVA’s, CCJ’s or bankruptcy – bridging can be a solution to help you in the short term.

As the name suggests bridging loans are products that are used to bridge the gaps in finance to an exit, exit options usually entail a refinance or a sale of the asset.

Criteria:

  • The term can be as short as one month and, as long as 18 months
  • You could borrow between £25k and £10 million
  • Rates can be as low as 0.5% per month
  • Non-status and full status
  • Interest roll-up plans available
  • Applicants with defaults or arrears are given serious consideration
  • Funds can be available within 7 days
  • Private individuals, limited companies and sole traders are also applicable

Property investors, individuals, businesses including professional landlords, and developers all utilise bridging finance as part of their overall financing strategy, bridging loans can also be arranged on a second charge basis.

Reasons to use Bridging

  • To repair a broken property chain
  • To raise funds very quick
  • To boost cash flow on a temporary basis
  • To refurbishment of the property
  • To help homeowners who are downsizing
  • To finish a development
  • To build a new home
  • To help with buying a property from auction
  • To convert a property into something that will appreciate
  • To raise a deposit for a purchasing a property
  • To secure the purchase a property where a mortgage isn’t available
  • To develop and/or renovate a real estate project

Types of Bridging Loans – Open or Closed:

Open Ended Bridging:

If you opt for an open bridging loan, you have to propose an existing plan for repayment of your investment. In this case, there is no actual date which is set at the loan’s outset. In open-ended bridging, the lender sets a date, which is the end point of the loan, this is the date by which you must repay the loan amount.

Closed Bridge Loan:

In the case of a closed bridging loan, on the other side, you the borrower who has to specify a set date to repay the loan. For example, if the borrower exchanges on a sale, and has a set completion date. Hence, he has to repay the bridging loan at the same time as the sale of the property.

Risks?

It is crucial to have a clear and concise exit strategy as the cost of bridging can spiral out of control, especially with interest rates averaging 1% per month. Bridging should really only be used with a calculated plan to ensure the loan can be repaid by way of refinancing or sale of the property, should a plan not come together, the borrower risks losing the property to repossession. Borrowers should never forget, just like a mortgage, the property may be at risk if the loan cannot be serviced.

Here at Rainstone Financial Services, we are an independent & commercial mortgage broker, our affiliation is with no one lender, our advice is based on your needs. Before we speak to any lenders will we fully understand your situation and based on that we will secure the best possible products, at the best possible rates.

Give us a call on 0333 339 0038 or visit our mortgage broker London office.  One of our experts will carefully assess your circumstances.

Almas Uddin

Author Almas Uddin

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