A bridging loan is very different to a standard bank loan. They are a common finance solution for professional landlords, investors, developers and even residential homeowners.
What is a bridging loan?
A bridging loan is essentially a short-term loan that is often arranged within a short timeframe. It can be provided to an individual or a company and is often secured against residential or commercial property. The defining characteristic is that it is a loan that bridges the funding gap until other funds are available.
What can a bridging loan be used for?
A bridging loan is often used to make a fast purchase while long-term finance is put in place to then cover the loan. With terms from 1 day to 3 years, this loan can be personalised to suit your financial predicament.
They are widely used by property developers when additional funds are needed to either complete the sale or carry out renovation work and are also used residentially by homeowners.
A bridging loan can be offered against property or land and can be used for a number of different reasons, such as:
Meeting deadlines fast
A bridging loan is a perfect solution for those looking to purchase a property, access funds to carry out renovations, or apply for planning permission – quickly!
In most cases, the funds can be made available in as little as a week, which is a lot quicker than the time it takes to process a mortgage.
Bridging loans are widely popular because they make it possible for people to seize opportunities as they arise. Property developers in particular use bridging loans to act on deals before they’re gone.
If a property is in need of significant refurbishment, many high street lenders might be reluctant to help out.
A bridging loan can cover the costs associated with renovation work and can then be paid back by selling the property or taking out long-term finance such as a mortgage.
Breaking the Chain
The property chain can be frustrating if you have already found a property you would like to purchase but you’re unable to sell the one you already have.
A bridging loan can help in this instance as it can be secured against the property you wish to sell in order for the current mortgage to be transferred to the new property. Once the property has sold, the loan is then redeemed.
This is great not just for homeowners that find their perfect home but for investors too. It means they can purchase their new investment, find a tenant and continue to earn an income off the property while waiting for the sale of the previous property to complete.
Many property developers purchase properties at auction. They’re a place of spontaneity and properties are often purchased without the buyer having a mortgage in place.
Bridging loans make it easy for developers to say yes to properties until the bank can approve the mortgage.
Additionally, auction properties are often showcased as un-habitable properties that require significant renovation. A bridging loan can provide the funds needed for the developer to buy the property and then carry out the renovation work.
If funds are unavailable during the sale or refinancing of a property, a bridging loan can be used for commercial means to pay essential payments such as tax, VAT, supporting the business during the temporary cash-flow gap, or to help fund business requirements such as stock and marketing costs.
Many landlords rely upon rent when it comes to purchasing further properties which can make building a portfolio a slow process.
For those that want to speed the process up, a bridging loan can help with expansion and be repaid by refinancing on to a long-term solution, such as a buy-to-let mortgage.
Bridging loans are a great finance solution for shrewd property investors and developers. It allows them to continue growing their portfolio, without waiting for cash flow to increase or for long-term finance to become available.
At Ramsay & White, we specialise in securing finance for first-time and experienced developers and investors.
Get in touch today to see if we can help you.
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