Mike Collins, a Mortgage Expert describes what bridging loan are and how they can aid in today’s economic environment.

Last Updated on: 22nd November 2023, 12:05 am

Bridging loans are essentially interest-only loans that can be availed by people who require cash immediately. It’s basically a bridge between credit being accessible and debt that’s incoming.

The short-term financial helpline is open to anyone who wants to buy the property at auction or buy it directly, perform renovations or build work, and other tasks when time is limited.

Mike Collins has 17 years of experience in financial planning. He said: With nearly half of all homebuyers losing their purchases to foreclosure it is vital that the borrower is able to swiftly move. A bridging loan may aid in this.

“Interest rates for the bridging loan are higher than other types of finance and I’ve been asked a lot recently whether now people need to be concerned that the interest rates have risen.

“The easy answer is that a bridging loans is typically paid back in some months, making the interest much more controlled and consequently less expensive. Here I will provide more details about Bridging loans and the reasons why they’re beneficial given the current financial climate.”

Bridging loan interest rates

These can be fixed – bringing stability providing you can keep up with repayments for the period that you’ve agreed. Variable rates of loan are subject to adjustments in line with the Bank of England base interest rate (Sept 2022).

Inevitably, the higher the rate gets, the more amount of repayments.

Rates can vary based on the purpose of the loan. The rates charged for bridging loans for business and land loans are more costly than one for a residential purchase.

The demand for buyers is extremely large. This can cause delays in the purchasing and conveyancing processes, which means it is essential to obtain bridging loans.

When considering the interest rates, it’s essential to realise that they are priced on a monthly basis. This is because the term typically runs between 9-12 months.

Cash is available fast

If time is essential, which it typically is for the projects mentioned above the bridging loan is more convenient to arrange than secured loans or mortgages.

The funds can be released in just three days, which sets bridging loans out from the rivals.

It’s much easier to set up because the loan decision depends on your exit strategy. This is how you’ll plan to pay back the loan after the loan’s term is up.

If your credit score is not high, you are still able to get one

As is the norm your credit score is a determinant of the likelihood of being approved for a bridge loan, however it may also impact the interest rate and fees you’ll have to pay.

It’s not impossible to get one even if you’ve got poor credit, as the majority of lenders place more weight on the worth of the property related to the loan than their credit score when it comes to rates.

Since the loan is secured against something of value There aren’t any lengthy screening processes.

Help repair damaged chains

Recent research has shown that one in five applicants required a bridging loan as they were part of an entire chain that was broken, which caused their anticipated timeline of purchase out of sync and resulted in the need for a short-term loan to pay for the rest.

Bridging loans can be a feasible option for making a sale even though the average length of time to complete is around four months.

However, the current rise of interest rates could translate into that buyers are less likely to purchase and, consequently, an increase in the number of bridging loans. These loans could be lifelines for property developers as well as buyers.

Whatever bridging loan option you select, make sure that they’re part of the Financial Conduct Authority. This will ensure that any complaints regarding large sums of money, can be dealt with in accordance the FCA guidelines.

The reason why a business should use the bridge loan

A bridging loan is a short-term financing option that can provide businesses with the funds they need to cover immediate expenses or to seize an opportunity. These loans are usually used to make up the difference between the purchase of a property or asset, and the receipt of long-term funding. A business, for instance, could use a bridging loan to purchase an item of equipment to meet the requirements of a new contract or to purchase a property before their current one sells. The bridging loan is a fast way for businesses to access capital to help them expand.

How can I obtain an bridging loan within the UK

It is necessary to speak with the lender to get an UK bridging loan. There are many financial institutions and banks that provide bridging loans. There are lenders specifically suited to bridging loans. The lender will examine your financial and creditworthiness prior to granting you an loan.

Mike Collins Mortgage Expert – How can rising interest rates and inflation affect property investors?

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