Mike Collins Mortgage Expert, Independent Financial Consultant, explains what bridge loans are and how you can use them in this current environment
Bridging loans, which are interest-only loans, can be taken out by people who have immediate cash needs. It acts as a bridge between credit becoming available and debt.
Anyone looking for a short-term solution can use the lifeline to help them buy or sell property, make renovations, or build work. This is often useful when time is limited.
Mike Collins, who has 17-years’ experience in financial management, said: Two in five home buyers lose their property purchase due to delays in their mortgage payments. The importance of being able and able to move quickly for the borrower is evident – and that can be done with a bridge loan.
“A bridging loans are typically paid back in a few weeks, which means that the interest is more managed and the loan is more affordable. I’ll be explaining bridging loans in more detail below.
Interest rates on Bridging Loans
They can be fixed. This will bring stability as long as you keep up the repayments you have made. Variable rates for loans tend to fluctuate in line with the Bank of England’s base rate of 2.25% (Sept.2022).
It is inevitable that the higher the interest rate, so are the repayments.
Rates may vary depending on how much you plan to use the loan. Rates for bridging loans to land and business bridging are typically higher than rates for residential properties.
Buyer demand is exceptionally high. This can lead to delays in the conveyancing or buying process. Bridging loans are therefore more necessary.
It is important to understand that interest rates are quoted on a monthly base when looking at them. This is due to the fact that most interest rates are 9-12 months.
Access to cash quickly
Bridging loans are faster to arrange than secured loans and mortgages, especially if timing is crucial.
Funds can be released in three days. This makes bridging loans stand out from the rest.
It’s easier to arrange, as the lending decision often depends on your exit strategy. The exit strategy is your plan for repaying the loan at the end of the term.
One can be obtained even if your credit rating is poor
Your credit rating is a major factor in whether you get a bridging loans. But, it can also have an impact on the interest rates and fees you might pay.
Bad credit doesn’t mean you can’t get one. In fact, lenders are more likely to focus on the property and not your credit score when they rate you.
Because the loan is secured against any asset of value, there are not lengthy checks.
Help for broken chains
Recent research showed that one in five applicants required a loan to bridge the gap. They were involved in a chain of events that caused them to miss their purchase timelines.
Bridging loans may be an option, as they can still allow a sale to take place, with completion times on average taking four months.
However, the current rise of interest rates could cause a dropin buyer demand and, therefore, a decline for bridging loans. For many property developers and buyers, however, loans such as these can be lifelines.
No matter which bridging loans you choose, be sure that they are members in good standing of the Financial Conduct Authority. This ensures that complaints, especially those involving large amounts of money can be addressed in accordance to FCA guidelines.