The cost of bridging loans have been reducing over the last 5 years. Rates now start from 0.49% pm and therefore they are no longer seen as a lender of last resort.
Also their use has changed from just the traditional chain breaking bridging loan. Bridging loans are mainly used to provide quick, short-term capital to fund property transactions.
A recent survey shows that the use of bridging loans are changing.
- 27% were used for refurbishments. This is where the client wants to purchase an uninhabitable property. Lenders will not usually lend on a property that doesn’t have a kitchen, bathroom, central heating etc. Investors use a short term loan and refurbish/renovate the property before selling it or putting it onto a buy-to-let mortgage at the enhanced value
- 25% were for mortgage delays and chain breaking. A bridging loan enables a seller of one property to purchase another property before the sale of their existing property. Also where a purchaser is in danger of losing the house of their dreams because of a delay with their mortgage provider.
- 15% were for other purposes. These include where a property needs a lease extension. Where a property has a short lease, it is unlikely that a client would be able to obtain a mortgage. A bridging loan could be used to extend the lease, before arranging a term mortgage. Others include where an investor needs to secure a property quickly to obtain an advantageous price, or developer needs to purchase a property or land prior to getting planning permission.
- 13% were re-bridges. These occur when there is currently a bridging loan in place that is about to expire or move on to punitive rates of interest.
- 11% were for business purposes. There are a variety of business uses for bridging finance. These range from having to pay an urgent tax bill to expanding the business.
- 9% were for auction finance. Here completion needs to take place within 28 days and traditional financing is not normally available within this time frame.
The above demonstrates the wide and varied use of bridging. Just as wide and varied are the number of bridging lenders out in the market and the criteria that they work to as well as the costs. Some of the factors that determine this are:
- Regulated or non-regulated transaction. Is it a personal or business transaction?
- Closed bridge (guaranteed exit route) or open bridge (less firm exit)
- Type, condition and location of the property
- Rolled up interest. This is where the interest doesn’t have to be paid each month and is added to the loan
With all of the variables and associated costs it is always prudent to seek the advice of a FCA regulated broker, before embarking on any type of bridging loan.
If you need assistance with any type of property or commercial finance please do not hesitate to ask for my help using the form below.
Contact Malcolm Jones
Commercial Finance, Development Funding and Bridging Finance