Over the years the financial markets have become increasingly sophisticated. The same is true when it comes to short term bridging loans. Bridge finance has evolved from the traditional home moving usage where the borrower lends against equity in their current property and the property to be bought. Today high-speed bridging has many uses, here we explore why this is so and how these facilities are being used today.
Bridging finance has a number of characteristics that make it a versatile solution for many who need temporary, short term funding.
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Those features include:
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Where any kind of dead-line needs to be met, then a bridging loan is usually the financial tool of choice as regardless of personal circumstances and as long as sufficient property equity is available, then bridge finance will deliver the capital. New uses for these facilities include emergency funding, credit repair, prevention of defaults, any kind of back to back transaction or any type of capital raising. We can now add buy-to-let investors, businesses, property developers and property traders to the original home move user.
When and how to use a Bridging Loan
Renovating or refurbishing a property prior to selling. Portfolio builders can buy, renovate or refurbish a property prior to re-mortgaging on a buy-to-let mortgage. Property developers can purchase a commercial or residential site for development, extending the bridging loan by drawing down cash at various stages of the build against increased value. Auction purchases normally need to be completed between 14 & 28 days of the hammer falling. Normal lending sources may not be able to distribute funds in those timescales and that route may lead to a lost deposit! Bridging allows the purchase of dilapidated property or property subject to mortgage retention subject to defects being made good. The speed with which a bridging transaction can be completed means that the buyer could negotiate a discount as a near "cash buyer". Payment of unexpected bills such as PAYE or VAT. Raise capital to put down a deposit on an overseas property purchase such as a holiday home. Prevention of CCJ's, bankruptcy or property repossession.
One very specialist use is to purchase a profitable company that comes with a commercial property, a bridging loan could be used against a business valuation, not just the bricks and mortar value of the property. Banks will not usually offer this option, but once a record has been established your local bank will probably offer a re-finance facility.
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