Three Common Uses of Bridging Finance for Property Investment
Bridging finance, otherwise known as short-term finance, has become increasingly popular in the last decade or so. Indeed, the sector now represents a multi-million industry in its own right, have thoroughly cast off the “last-resort” image it was once tarred with.
Nowadays, bridging finance comprises an integral tool in the arsenal of most property developers and landlords, being used for a variety of different purposes. Here are three of the most common, along with information about the typical rates, timeframes and fees associated with short-term finance.
1. To purchase an investment at a property auction
Generally speaking, all properties that are bought in an auction house have a 28-day deadline in which the buyer must raise the funds and complete the transaction. There are some mortgage providers who are capable of meeting this tight turnaround, but it can be stressful to rely on one if you’re not certain you can secure the finance in time.
For that reason, a bridging loan can offer a safer and more stress-route approach, with some short-term lenders now even happy to allow an immediate refinancing of the asset in question. We can help you assess your options and find a finance provider that’s right for your situation.
2. To complete a purchase when planning permission has not yet been approved
If a project is likely to achieve planning approval but has not yet done so by the time that it comes to complete the transaction, many traditional mortgage providers may shy away from approving an application. In order to avoid missing out on the deal, many property developers are now turning to a bridging loan to raise the necessary capital to finance the purchase. Then, once planning approval has been granted, the land or property can then be refinanced onto a conventional mortgage.
3. To purchase properties which require refurbishment
Many traditional mortgage providers only approve applications for properties which are already market-ready. For those which require refurbishment works, it may be necessary to take out a bridging loan to complete the purchase and fund the refurbishment. Then, once the works have been completed and the property becomes habitable, it can be sold on or moved onto a conventional buy-to-let mortgage.
Other important information about bridging loans
While the specifics of each product will differ depending on the unique circumstances of the application, you can generally expect to access the following:
Loans of between £50,000 and £25,000,000 (and, in some cases, even more)
Loan terms of between six months and two years
Interest rates starting at 0.55% per month
Loan-to-value (LTV) ratios of as much as 80%
Arrangement fees as a percentage of the overall loan amount, normally between 1.5% and 2%
Who is eligible for a bridging loan?
Most bridging finance providers are open to considering applications from all kinds of people, including individuals, partnerships, limited liability partnerships (LLPs) and limited companies. Some specialist providers will also consider applications from offshore companies, foreign nations, trusts and expatriates. We can work with you to find a provider suitable for your situation.
In order to give your application the best chance of acceptance, it’s crucial that you have an exit strategy in place for how you plan to pay off the loan. Most often, borrowers will finance the repayment of the loan either by selling the property or by refinancing it onto a buy-to-let or other type of conventional mortgage.
In general, there are two methods of servicing a bridging loan. Borrowers can choose to pay off interest on the loan on a monthly basis, before repaying the capital at the end of a pre-agreed term. Alternatively, the interest accrued can be included along with the capital in a lump-sum payment at the end of the loan’s term. Determining which route is most suitable for you is crucial to ensuring you get the best deal. We can help you assess your circumstances and provide advice on which way to service your bridging loan.
How does the bridging finance application process work?
We’re experts in handling the application process for bridging loans and pride ourselves on ensuring your application is approved and you receive the funds in as short a window as possible. We can normally help you to secure an agreement in principle within four hours, while it can take as long as a day on occasion. As for securing approval of the loan itself, this generally takes around two to three weeks to achieve, but can be longer in certain circumstances.
When handling your bridging loan application, we’ll compile all of the necessary paperwork and ensure it’s presented to the finance provider in the correct format. We’ll also submit the application on your behalf and stay on top of how the process is progressing, keeping you updated at every step of the way. We offer impartial advice to all clients completely free of charge and with no obligation to act upon it, so if you’d like to learn more about how bridging finance can help your property investment portfolio, please do get in touch with our friendly and professional team.
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