Did you know that there is more than one type of bridging loan? Jeni Browne explains the different types, their uses and looks at how to qualify for this type of loan.
In days gone by bridging finance had a bit of a bad reputation. It was regarded as being punitively expensive with the threat of some louts with pit bulls rocking up at your house if you didn’t repay on time.
Today, however, things have definitely changed. Bridging is now a viable option being offered by some very reputable organisations. And pricing is not actually as bad as you may expect.
Bridging loans have many uses which we hope our cases studies will illustrate, and is now a very viable option where traditional finance is not on the table.
In essence, bridging is short term finance, designed to offer a temporary funding solution to property acquisition. Whilst it can be made available for terms of up to two years, most people will use it for 6-12 months, and then repay the loan either by refinancing the property onto a traditional mortgage or by selling the property (or another asset) and using the sale proceeds to repay the loan.
These days I think it’s fair to say that there are two types of bridging loan. The first is what is often called (by cunning marketing people who are trying to make you think you aren’t actually taking bridging finance) ‘short term finance’ or ‘refurbishment finance’. The second is true bridging finance.
Short term finance and refurbishment finance
Lenders in this category tend to place more emphasis on the borrower and not just the security (the property itself). This means that lenders look at things like:
• Your credit report – some lenders use the scoring system, others will look at the overall profile to ascertain how you conduct your financial affairs.
• Your experience in refurbishing property – have you carried out any similar project successfully. If not, do you have sufficient funds to pay contractors (and a qualified project manager).
• Your exit strategy – how you intend to repay the loan. If you are hoping to remortgage then the lender will be looking at your profile very carefully to ascertain if you are likely to qualify for longer term finance. If you plan to sell the property they will want to check that there is a good market for it, at a price that will support the loan.
Pricing for this type of bridging finance starts at around 0.65% pcm (at 50% LTV) upwards.
Traditional bridging finance
In the truest sense of the word bridging finance is pure asset lending which means that lenders ensure that the property used a security (the asset) has enough value to repay the loan should you be unable to.
This type of lending comes at a premium and starts at around 1% pcm. Needless to say, these lenders operating in this market are lending on the stuff the ones offering the lower pricing won’t touch!
The majority of bridging transactions we do are for people who are purchasing property which is either in need of refurbishment before a traditional mortgage can implemented, or for those properties which are going to be refurbished and then sold. However, they can also be used as a way to raise funds quickly for a short period of time or to facilitate purchases where the chain has broken.
A look at our bridging case studies will demonstrate the wide variety of uses for this type of finance. And of course, will show you how we can help you, if you are looking for this type of finance.
As usual, do get in touch to talk through your requirements. Remember, our broker fees are on a success only basis, so it costs you nothing to enquire.
Our main contact number is 0345 345 6788 or you can contact me directly – my details are listed below.
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21st June 2016