Bridging loans are used for many purposes, the loan is a short-term facility that is secured on property or land generally used to provide a temporary cash injection. This type of loan is useful for several reasons; however, we will focus on some of the main reasons someone would want to take out a bridging loan.
Auction purchases happen quickly, this means that a buyer will need to have a minimum 10% deposit ready to secure the purchase, and usually, a further 2-6 weeks to secure the purchase. This is where a bridging loan can come in handy.
The loan can help with securing funding for the property very quickly, giving you the confidence in knowing that you can complete the transaction within the time frames set. Once the funding is in place, you can then re-mortgage onto conventional mortgage products, to re-pay the bridging facility.
The good thing about bridging loans it is not always just about your income, instead, you can take out the loan based on the value of existing property or land.
Risk of Chain Collapsing
This is where you are planning on selling your existing property, to purchase your next house. However, you may come across a scenario whereby you have found a property that you would like to buy and would like to make an offer, however, your current property has not been sold yet, nor do you have a potential buyer interested in it.
A short-term bridging loan can be secured against your existing property value, up to 75%, enabling you to purchase the property that you want with cash. The bridging loan can have terms between 3 – 18 months, thus giving you an opportunity to settle the bridging loan once you have sold your current property.
Bridging loans are also popular for development purposes. These swift loans can help a buyer acquire a development site that requires planning permission. Alternatively, to as means of refinancing while a complex scheme is sold off.
Regarding professional development purposes, a bridging loan can be taken out by a registered (ltd) business.
How is a bridging loan different from development finance?
Bridging loans are generally suited to smaller development projects, in that they are leveraged against existing property. Whereas development finance is usually for large-scale projects where funds are released when various stages are completed.
Bridging loans are also popular with property renovations, as they are quicker to obtain compared to traditional mortgages.
If you intend to buy a property that needs a great deal of work done it then, a bridging could be what you are looking for – these loans have been used by property developers to refurbish a property with a view of selling the property once the work is complete.
This tends to be a useful option for property developers as this enables them to start work on a property quickly, thus holding onto the property if is necessary before being sold on.
A key thing to remember with any mortgage is key advice from the FCA (Financial Conduct Authority) “your home may be repossessed if you do not keep up with payments”.
Journey Mortgages is a specialist broker that can help you with bridging loans and more. Get in touch, and one of our friendly team with be happy to help you with your inquiry.