Ensuring that you have enough money to finance your project is imperative to the process of property development. However, the range of different finance options available can be enough to confuse anyone. Although bridging finance has been around for a while now, there’s still some confusion surrounding it – what exactly is bridging finance and what can it be used for?
What is bridging finance?
Bridging loans exist with the intention of helping people to purchase a property prior to selling an existing one. This funding works as a solution that ‘bridges’ the gap by providing access to money that can be used to secure a property or land or keep a business running.
Bridging finance for land or property tend to come with higher interest rates when compared to traditional longer-term funding solutions, and this rate is usually based on the loan amount required. Alongside this, collateral is often required as security.
The duration of the loan will be dependent on the bridging loan broker; however, they tend to range from a couple of weeks up to 12 months. There may be cases where they extend longer, but this will be dependent on a thorough exit strategy.
Who is it aimed at?
Bridging loans are most commonly used by landlords, property developers and investors who need bridging finance to secure a property while they wait for an existing one to be sold.
They may also be used by people who wish to complete the purchase of a property being sold at auction; where a mortgage may be required immediately.
If you are interested in bridging finance to buy either a property or land, it’s imperative that you have developed a thorough exit strategy. This strategy may be a mainstream mortgage, a buy-to-let mortgage or selling the property.
In lieu of Brexit and the uncertainty the UK is currently experiencing, high street banks have become more stringent over lending. Due to this, there has been a large increase of bridging finance lenders that have come into the market.
What are the advantages of bridging finance for property?
- Short term
- Allow time to either sell an existing property or arrange longer-term finance
- Borrowers have control over repayment
- Can improve credit score if payments made on time
- Quicker to arrange than traditional finance
- The market is becoming increasingly competitive
What are the disadvantages of bridging finance?
- More expensive and higher interest rates compared to traditional mortgages
- Longer-term credit is needed to pay off the bridging finance
- There may be additional legal and administration costs
What is a second charge bridging loan?
A second charge bridging loan is where a property which already has a mortgage on it is used as collateral. They are generally used for improvements to an existing property such as a loft conversion or extension.
How long does bridging finance take?
Bridging is faster to arrange than a conventional mortgage, but the time it takes to get the money will depend on how quickly you provide and supply the required documentation needed to proceed. Average completion times for secured bridging finance is between 5 and 7 days however more complicated transactions may take longer.
Finance 4 Business
Finance 4 Business have access to specialist lenders across the country and we are experts in providing property finance solutions. From the outset, Finance 4 Business will provide you with a full breakdown of all costs and fees involved, ensuring that we are fully transparent. This will include the lender arrangement fee, monthly interest costs, valuation fee and legal costs. Other fees vary from lender to lender and all are disclosed upfront.
Call us on 0121 309 0444 or email us on enquiries@finance-4-business.co.uk for more information about how bridging finance can support you with your property developments.