Bridging loans are interest-only loans that are able to be taken out by individuals who require cash immediately. It’s basically an intermediary between credit being in the market and debt coming into it.
A lifeline for the short-term can assist those who are looking to buy property at auction or for purchase make improvements, complete building work and more – often when the time is tight.
Mike Collins, who has 17 years of experience in financial planning, stated: ” With two out of five homeowners losing their home purchases due to delays in mortgage approval, the significance of being able move quickly is evident from the perspective of the borrower – and they are able to do it with a bridging loan.
“Interest Rates on Bridging Loans are higher than Other Finance Products and I’ve been asked numerous times lately if anyone should be concerned that interest rates have increased.”
“The easy answer is that a bridging loan is typically repaid in several months, which makes the interest more controlled and, therefore, the loan more affordable. I will explain bridging loans in more detail below and explain how they can assist in today’s competitive economic context.
Interest rates for bridge loans
They are able to be fixed that can give stability if you’re in a position to make the repayments for your term. Variable loan rates are subject to adjustments in line with the Bank of England base interest rate (Sept 2022).
The higher the interest rate is, the more costly your payments will be.
Rates may vary based on the need for the loan. Bridging loans for business or land bridging loans can be more costly than those for residential purchases.
The demand for buyers is large. This leads to delays in the buying and conveyancing processes, which is why it is more crucial to secure bridge loans.
It is essential to remember that interest rates are calculated on a monthly basis when you are looking at them. This is due to the fact that typically, the terms are only 9-12 months.
Access to cash quickly
If time is of the essence in the event of a delay, which is usually the case for the projects listed above the bridging loan is faster to set up than secured loans or mortgages.
Bridging loans are available in just three days.
Since the lender is dependent on your exit strategy, it’s much simpler to plan your exit strategy. This means, what you intend to pay your loan back when the term has ended.
You can apply for one even if your credit is bad
Your credit score will determine whether you’re approved for an unsecured bridge loan. However, it could affect your rates of interest and the fees you may be required to pay.
It’s not impossible to secure one if you do have bad credit as the lenders put more weight on the worth of the property associated with the loan than your credit score when they consider rates.
There are no lengthy check-ups since the loan has been secured by an asset of worth.
Help with broken chains
Recent research has revealed that one-in-five applicants needed a bridging loan due to being part of an entire chain that was broken, which pushed their expected purchasing timeline off kilter and created the need for a short-term loan to pay for the rest.
Bridging loans are a viable option to sell, even though the average length of time to complete is around four months.
The current interest rate rise can result in a decline in buyer interest, and, consequently of that, a decline in the amount of bridging loans. In the meantime, loans like these could be essential for many consumers and property developers.
Whichever bridging loan you choose be sure to check that they are part of the Financial Conduct Authority (FCA). This means that any complaints particularly when large sums of money are involved – can be handled in accordance with FCA guidelines.
The reason why a business should make use of a bridge loan
Bridging loans are short-term finance options that allow businesses to meet immediate requirements or to take advantage of a timely opportunity. They can be used to help bridge the gap between buying an asset or property and receiving financing for a longer period. For example, a business might take advantage of a bridging credit to buy a piece of equipment required in order to complete a new agreement, or to buy a house before their existing one sells. The bridging loan is a fast way for businesses to access capital and aid in their growth.
How can I obtain a bridging loan in the UK
You’ll have to get in touch with the lender to request a UK Bridging loan. A majority of financial institutions and banks offer bridging loans and you may also locate special bridging loan lenders. The lender will review your creditworthiness as well as your financial situation before making an loan.