How To Find The Best Bridging Loan: What You Need to Know
Bridging finance is a bespoke facility, tailored to meet the unique requirements of each individual applicant. Most aspects of bridging finance are negotiable, enabling borrowers and lenders to reach mutually-amicable agreements with the input of a qualified broker.
But what can a bridging loan be used for, and how to find the best bridging loan for your requirements?
What Can Bridging Loans Be Used For?
Bridging loans are designed to ‘bridge’ temporary financial gaps when significant sums of money are needed as quickly as possible. A strictly short-term facility, bridging finance can be a uniquely cost-effective option when repaid as promptly as possible.
Typical applications for bridging finance include the following:
- Picking up bargain properties at auction
- Conducting renovations before selling a property
- Buying a property that cannot be mortgaged in the normal way
- Improving a property before letting it out
- Solving short-term business cash flow problems
- Avoiding chain break scenarios when relocating
- Buying a derelict or rundown property to renovate
Choosing the right bridging loan begins with assessing how the funds will be used, and how/when you intend to repay the loan.
Is a Bridging Loan a Secured Loan?
Bridging loans are secured loans, which mean that appropriate assets of value (security) need to be provided to cover the costs of the loan. This will usually be the home of the applicant, though could also be a business property or other assets the issuer is willing to accept.
The value of the assets you provide to cover the costs of the loan will have a major impact on both your eligibility and the competitiveness of the deal you are offered. Where a bridging loan is secured on assets that comfortably exceed the value of the loan, the borrower may be offered more competitive rates of interest and lower overall borrowing costs.
Where Can I Get a Competitive Bridging Loan?
The UK is home to an extensive network of bridging specialists, each with their own unique portfolios of products for a wide variety of purposes. Independent broker support holds the key to getting the best possible deal, as many lenders offer their services exclusively via broker introductions.
Your broker will conduct an extensive market comparison on your behalf, ensuring you get the best possible deal from an appropriate lender. Importantly, your broker will negotiate on your behalf to ensure applicable borrowing costs are minimised.
What is An Exit Strategy?
This is one of the main factors that will be used to determine your eligibility and the competitiveness of the loan you are offered. Your lender will expect to see evidence of a viable exit strategy – i.e. how you intend to repay the loan and when.
Examples of which include:
- Selling the property you purchased with the bridging loan
- Selling a different property and using the funds to repay the loan
- Transferring the bridging loan to a longer-term mortgage
- Using inheritance or savings to repay your bridging loan
- Letting out the property you purchased and transferring to a BTL mortgage
The more viable your exit strategy, the more likely you are to qualify for a competitive bridging loan.
How Much Does a Bridging Loan Cost?
Costs vary from one bridging product to the next, and will be negotiated by your broker to ensure you get a good deal.
Monthly interest on a bridging loan can be as low as 0.5%, making it a hugely affordable facility when repaid short-term. Other fees and charges that may apply include arrangement fees, valuation fees, administration fees, legal fees and so on.
The services provided by your broker will be offered 100% free of charge, making broker support a must for anyone looking to get a good deal on a bridging loan.