The final quarter of the year in the UK housing market is often a busy time, with buyers and sellers rushing to complete transactions before year-end.
However, this increase in activity can also lead to a higher risk of property chains collapsing.
A chain break occurs when one transaction in a sequence of dependent sales fails, causing delays or even cancellations for everyone involved.
For those facing the threat of such disruptions, bridging finance is the solution.
Bridging loans provide short-term funding that allows buyers to proceed with their purchases even if there is a delay or issue in their chain. As advisers, it’s important to understand and communicate the benefits of bridging finance, especially when interest rates are relatively high.
That being said, the speed, flexibility, and efficiency of bridging loans make them an attractive option for clients who need quick solutions.
How Bridging Encourages Transactions Prior to Year End
With the year-end fast approaching, there is often a rush to complete property transactions.
Rushing to complete huge transactions like property transactions makes for a more stressful experience, increased pressure might allow for important details to be overlooked and limit time for due diligence.
You should avoid making decisions on a whim, especially with so much money on the line.
Not only is decision-making impaired, but you’ll likely be paying out more to expedite processes that may need time to play out, like surveys.
All of these smaller issues amount to larger ones, one of the main issues in investment being the break of property chains, or at the very least risking not making as much on property that you could or should have, had you had the time.
So, where does bridging finance come into the scenario and how can it help?
Bridging finance helps facilitate these deals faster than traditional methods by offering quick, temporary funding solutions.
Whether it’s to cover the gap between the sale and purchase of properties or to provide the all important funds for a new purchase while waiting for funds to be released from a sale, bridging loans can keep transactions on track.
Advisers can position themselves as experts by guiding clients through these time-sensitive transactions, ensuring smooth completions without the worry of chain breaks.
How Does a Bridging Loan Work?
In a nutshell, a bridging loan is a short-term financial product designed to ‘bridge’ the gap between two transactions.
Bridging loans work by securing against the property, designed to be repaid within a few months or when the client’s existing property sells.
We assess our customers on a case by case basis, ensuring that we take everything into consideration. There are no one-size-fits-all approach when it comes to bridging loans, each circumstance is relatively unique, which is why we are so flexible in who we can provide loans to.
This case by case basis and exit strategy is determined differently to that of a traditional mortgage, meaning that we may be able to provide acceptance in a way that mortgages and banks cannot.
The point of bridging finance is to be flexible, convenient and fast - something that other funding methods may not be.
The Benefits of Utilising Bridging Finance
The benefits of bridging finance is endless, but some of the key ones include:
Speed of application & finance: As mentioned, bridging loans can be arranged much faster than traditional mortgages, often within a matter of days.
Flexibility: Bridging loans can be used for various purposes, including residential, commercial, auction purchases, land bridging, HMO investments, and semi-commercial projects.
Short-Term finance: Since they are meant for a limited period, bridging loans are ideal for covering gaps without committing to long-term borrowing.
Eligibility of loans: Even in situations where traditional lenders might be hesitant, bridging finance offers solutions that keep transactions moving forward.
The best way to understand if you are eligible for bridging finance and if it suits your situation is to talk to a reputable lender.
The Speed of Bridging Finance Arrangements
One of the main reasons clients turn to bridging finance is its speed.
Traditional mortgage processes can take weeks or even months, but a bridging loan can be arranged in as little as 48 hours.
This fast access to funding is crucial for those that might be facing tight deadlines or competitive buying environments, such as property auctions. It ensures that they can act quickly and secure deals without losing out due to financing delays.
Types of Bridging Finance
Bridging finance isn’t always the same, in fact there are several types of bridging loans available, tailored to meet different needs:
Residential Bridging Loans: Used for purchasing or refinancing residential properties.
Commercial Bridging Loans: Ideal for business owners looking to secure commercial property.
Auction Bridging Loans: Designed for quick transactions, enabling clients to buy properties at auction without the usual delays.
Land Bridging Loans: Helps with purchasing land when funds are required quickly.
HMO (House in Multiple Occupation) Bridging Loans: Suitable for those investing in rental properties with multiple tenants.
Semi-Commercial Bridging Loans: For properties that have both residential and commercial elements.
Frequently Asked Questions (FAQS)
How do you calculate bridging finance?
The cost of a bridging loan is typically calculated based on the loan amount, interest rate, and duration. Clients should also consider arrangement fees, legal fees, and valuation fees when estimating the total cost.
Can you repay a bridging loan early?
Yes, most bridging loans offer flexibility for early repayment. However, clients should check for any early repayment charges or terms set by the lender.
What is the typical interest rate on a bridging loan?
Interest rates on bridging loans vary, but they are generally higher than traditional mortgages due to the short-term nature of the loans.
This is due to the convenience of the loan and how useful they are. It may be slightly increased but could make you money in the long run if it saves missed opportunities at investment.
Comments