Bridging finance or a bridging loan can be used for a variety of reasons, especially when you need to borrow money in the short term. It allows borrowers fast access to finance for all types of purposes, from residential to commercial. As rates and loan to value (LTV) have been in a constant state of change in the current market, it is now more important than ever to learn how to navigate the complexities of a bridging loan. Below you will find some of the most common reasons why you may consider bridging finance and the benefits it offers.
Funding A Renovation Or Refurbishment
It can be almost impossible to secure refurbishment finance from a traditional lender, as it is likely that they will view the property as unsuitable for mortgage purposes. Nevertheless, a light refurbishment or renovation usually takes less time to complete, which means a bridging loan can be used. Bridging finance for renovation work is especially useful to property developers and buy-to-let property investors. This is because they often need to improve the condition of an existing property, such as by adding a new bathroom or kitchen.
Purchasing A New Property
When you are in the process of purchasing one property while selling your old home, bridging loans can help you borrow money for a short period. For example, if you are looking for mortgages for contractors, it may be helpful to use a bridging loan calculator. Advias is an experienced and trusted contractor mortgage broker, who will provide you with a property financing solution based on your unique situation. Alongside bridging finance, they specialise in premium mortgages, development finance, and mortgages for contractors. Thanks to their in-house analysis tools and extensive database of lenders, you will be able to obtain the best possible bridging loan terms.
Buying A Property At An Auction
If you have secured the winning bid on an auction property, you can typically expect to pay a 10% deposit on the day. The remainder of the purchase cost will be required not long after. However, this can be a problem for many people, as a standard mortgage usually takes more than 28 days to be processed. Therefore, a bridging loan may be the best solution in this case, since it will eradicate the worry of not being able to complete the purchase within the requested timeline.
Purchasing A Commercial Property
Property investors often need to act fast when an opportunity presents itself. For example, investors who may want to purchase a commercial property will need to access funds quickly. Although this can be difficult as capital might be tied up in another property, bridging finance is a viable option. Commercial mortgages are usually more complex than residential mortgages, which may lead to large deposits and rigorous income tests. Also, if the process takes too long, investors may risk losing their deposits, if the sale falls through. However, a bridging loan will allow property investors to remain competitive.
Developing Uninhabitable Property
You can also use a bridging loan to raise funds for a property, which may be considered uninhabitable by a traditional lender. For instance, this property may be in a poor state of repair or lack essentials, such as central heating or running water. Using bridging finance will help you purchase the property, as this type of lender will appreciate the process of renovation that needs to take place. Keep in mind that lending rates are usually higher than standard mortgages and they can vary depending on the level of deposit.
Downsizing Your Home
Downsizing your home can offer a variety of benefits, especially if you are looking to move closer to family or reduce your household bills. However, downsizing also relies heavily on the sale of your old home and the purchase of your new one. As a result, many people try to sell their homes as quickly as possible, which may cause them to settle for less or give up on the idea altogether. Bridging loans can take off some of that pressure and help you get funding without any lengthy processes. They can also reduce the chance of losing out on securing a new property.
Navigating Long-Term Mortgage Delays
Traditional long-term mortgages can take a significant amount of time to be completed. Even simple mortgage applications may take over a month to take effect. This means that many people may risk losing out on a deal, as they haven’t secured the finances in time for a particular deadline. Bridging finance can be useful in this scenario, since it can cover the period between purchasing the property and completing the long-term mortgage. As soon as the traditional mortgage has been finalised, it will be easy to repay the bridging loan.
No matter the complexity of your case, a bridging loan can help you find the best solution to suit your circumstances.