Suppose you have been driving across the neighbourhood, and your eyes get stuck on a beautiful renaissance house.
However, you were looking for a property but not on a priority basis. But suddenly, you wish it was yours at the very sight. Who would not like a charming colonial infrastructure? The fear of missing out on the opportunity starts to seep.
What if somebody auctioned the property?
The fear of losing the dream house to someone else owing to a minor fund shortage is no less than a nightmare. The fear deepens.
What can you do to meet the payment gap between available and required funds?
Here Bridge loans knock on the doors as a solution.
What does a Bridging loan imply?
A bridging loan is a temporary funding arrangement that helps you buy a new property and sell the existing one simultaneously.
These loans help builders, real estate owners, and business personalities win the auctioned property by bridging the purchasing amount. The person must pay 40% of the property price upfront to get legal access in the auction case. In the absence of this, someone else can take over the lead.
To bridge this gap, specific lenders provide bridging loans. These are generally high bracket loans that the borrower pays off with the sale of the existing home. Unlike regular mortgages that share a 25-year term, bridging loans share a maximum period of 12 months.
Beyond this, these are deemed unregulated. Specifically, a bridging loan for property development could potentially prove profitable in terms of the new house value. It eliminates any “FOMO” factor and grants confidence to capitalize on the opportunity.
When should you use bridging finance?
There are multiple scenarios where using bridging finance could be a quick and flexible solution.
Pay the total amount within 28 days
The timeframes of completing the auction transaction are sensitive. The bidder and the winner must pay the amount within 28 days of accepting the bid. Thus, these individuals could apply for bridging loans and buy the property quickly in their name.
Property Renovation and development
In some cases, the old and abandoned property gradually begin losing value. In this case, the property owners and dealers look for affordable solutions to get finance quickly. They aim to renovate and amplify the property value for resale.
By increasing the resale value with bridging loans for property development and making it an ideal place to live, they market the property to buyers. Some conduct auctions too.
The property holder may refinance it to get a better buy or sell it to the landlord as a buy-to-let property. In this case, the property holders generally look for long-time funding, like up to 12 months.
Help face unexpected cashflow downturns
It is helpful or emerges as a saviour in darn financial downturn situations. In the case of extreme loss, liabilities, and short-term cash flow issues caused by seasonal outlays, bridging loans help them utilize the asset they still have in the best possible way.
It is an instant solution to deal with the prevailing financial backdrop in business. The business may gradually repay the funds in 12 months as the situation improves. It is indeed a life saviour for business personalities and entrepreneurs.
Prevents repossession of the property
Unlike the mortgage, where the lender may claim the property staked as collateral on non-repayment, a bridging loan help prevents property repossession. Individuals facing the forced sale of property in the situations like divorce or a family rift can benefit from bridging loans.
Using a bridging loan, they can pay off their debts and get the time to find a tangible and practical solution to the problem. The person can use the given time to draft the beneficiaries and complete the legal proceedings hassle-free.
Bridging loan eligibility Criteria: Who can legally apply?
Each lender shares its criteria for granting the loan. The basic eligibility criteria are here as follows:
- You must be a private individual, a partnership, or a limited company
- Want a loan for purchasing or refurbishing the residential or commercial place
- Must be 18 years or more
- Must possess one or more properties to reflect on the loan application as collateral to secure the loan.
- Live or have a permanent address in the UK.
- Exit strategy to pay back the loan is a must. It is the absence of which the lender may deny the loan. You may also lose the property to the lender in case of default. Thus, improvise and make a sound decision while applying for the loan.
- Must have valid income or revenue proof to get the loan (Only if required)
- Need urgent funding anywhere from £1,00,000- £1 billion for property-related requirements
- A Lender may ask for a business plan in case of buying property to make money.
Is Bridging loans – an ultimate property finance solution?
Bridging loans could be an excellent option if looking to raise revenue in business or increase your net worth. Re-consider your decision before opting out. Check these pros and cons.
PROS OF BRIDGING LOANS
- The 14-day fund completion period grants one enough opportunity and flexibility to pay the amount in full.
- The borrower does not pay any monthly payment or interest in this case. It is the best solution if you have the means to refund the loan.
- Pay interest after the loan term completion.
- The interest rates on bridging loan markets are affordable, making it a to-go solution for instant property purchases.
- One could take bridging loans to revamp unhabitable properties.
- You get the 100% loan amount without paying a deposit.
CONS OF BRIDGING LOANS
- These are fairly more expensive than traditional mortgages. You could check general mortgage rates if you do not need urgent property funds.
- If the repayment mode you choose to pay the loan encounter glitches, or you default the loan, the lender may re-claim the property staked.
- A bridging loan includes multiple fees like broker, valuation, and legal fees.
It is important to remember that bridging loans are the short-term and urgent solution to property purchases or reformation. It could prove expensive if you tap without knowing the purpose. For the long-term, you could consider a mortgage or a home improvement loan.