The upturn in the economic climate and government incentives has allowed the building and housing market to grow. The growth in the housing market has meant that building and developing residential property has become an attractive proposition once again. This has led to increased finance needs from developers and entrepreneurs alike, bridging finance has now become an appealing option which the team at Primary deal with on a regular basis.
In recent years bridging finance has turned from a specialist lending solution to a main stream option and this has bought more lenders into the market giving our client greater choice. There is many reasons that bridging finance may be something that you are looking, but what do people use bridging finance for?
- Commercial Property Purchase
- Residential Property Purchace
- Auction Properties
- Development Funding
- Renovation Projects
- Business Cash Injection
What Is A Bridging Loan?
A bridging loan is designed to be a short time loan it can be used by individuals and business for any of the reasons outlined above. It is designed to be temporary finance and should always have a repayment vehicle attached to it.
There are two main types of bridging finance closed bridging and open bridging. With closed bridging the borrower has a set repayment date which is outlined at application stage. Open bridging is where a exit plan is proposed to the lender there is still a clear close date at which the loan has to be repaid but this option does offer slightly more flexibility and can be used if sale of property or exchange has not yet been confirmed at the point of taking out the loan.
One of the main differences between a bridging loan and a standard mortgage loan is the speed in which it can be arranged for the client. A standard mortgage can take on average 3 months where as bridging finance can be arranged within just a few days.
The process normally takes anywhere between 7-28 days but can be arranged a lot quicker. The amount of time depends on the individual criteria and what the customer is looking to achieve from their bridging finance. Once the funds are released interest payment can either be paid monthly or rolled on to the closing balance of the loan and repaid at the date agreed at the outset of the agreement.
People are using bridging finance more regularly because of the flexibility and ease of raising short term finance that this option provides. Interest rates quoted are monthly and not annually, but this will be explained to you by your advisor and set out in the terms of business. In the past bridging finance has been seen as a rather expensive short term solution but because of the increase in popularity more and more lenders have joined the market and this increased competition between the lenders has seen rates fall to make it more attractive for individuals and business owners.
It is a short-term finance solution which is secured against a residential or commercial property. This loan is secured by a legal charge on the property. It is offered to clients to allow quick finance against property. There is a flexible and concise underwriting process which allows these loans to be sourced and secured quickly for our clients. Loan terms can be taken from 1 month to two years.
Professional developers regularly use bridging finance as it allows them to move quickly on property and land purchases that they need to grow their business. This area has grown significantly since the recent upturn in the property market. Bridging finance can also be used for renovation and this is perfect for buying properties from auction where the property may not be mortgageable in its current state. You can then use your bridging loan to develop the property to a mortgageable or rentable standard.
Commercial cash flow bridging can be used to pay tax bills VAT bills or invest in machinery and stock. This can be used in a anyway to improve your business or increase cash flow in your business.
Borrowing amounts vary and different lenders we work with have minimum and maximum loan amounts. This also comes down to your personal circumstances and the assets that the development finance are being secured against. The average minimum is £10,000 and a max of £15 Million. The borrowing amount is 75% of the loan to value on residential, on commercial properties and land which are deemed as higher risk this is typically a lower loan to value of between 50%-65%/
One of the main benefits of bridging finance is the time that it can take to secure the finance. There is still underwriting and a legal process involved and this can take between 7-28 days. If you are using bridging finance to purchase a property this could take slightly longer as it is dependent on the property being purchased and the chain, which is out of the lenders control.
There is no minimum income but your experience could be questioned as the lending is used for developments and refurbishments its not uncommon for the lender and broker to require a CV of previous work carried out. Although the is no minimum income you are means tested to ensure that you can service the debt itself.
The loan terms are between 1 month to two years, this is dependent on your individual circumstances.
Yes, the bridging loan can be repaid early and even by a different repayment vehicle. With some lenders will have an early repayment charge this will be discussed with you on the terms of business and with your experienced advisor.
Yes, adverse credit will be looked at with the greater volume of lenders in the market place lenders are now able to look at clients with adverse credit history. Every case will be assessed individually and your advisor will work with you to achieve this.
Bridging is flexible and offers a range of ways in which interest can be repaid. This can be done monthly or rolled up and repaid with the final balance. Speak with your advisor and find out which option is best for you.
This is something that did not used to be possible apart form in extreme circumstances. With more people in the market and the growing market for bridging finance this is now a solution that can be looked at if needed.