Recent years have seen the UK bridging loans market grow, expand and diversify like never before. But what exactly is bridging finance? Or more importantly, what are the benefits of bridging loans, over and above more traditional financial products?
Bridging loans are short-term interest-only loans, which are typically used to cover the costs of property investments. Bridging finance allows borrowers to purchase properties while awaiting the sale of their existing property – effectively ‘bridging’ this temporary financial gap.
Most borrowers use bridging loans to buy properties in cases where their current property has not yet been sold. They are also routinely used to cover the costs of large-scale property refurbishments, upgrades and extensions, prior to the property being sold-on for profit. Investors looking to buy properties quickly at auctions also often rely on bridging finance.
There are two primary types of bridging loans, which are as follows:
Across the UK, more High Street lenders and independent companies are offering access to bridging loans than ever before, with successful applicants often accessing the funds they require within no more than a few days.
Quality bridging loans bring a variety of unique benefits to the table, including but not limited to the following:
However, there are also some downsides to factor into the equation, such as:
The table below resembles a typical bridging loan repayment rate of 0.44%, over a 12 month term exc. broker fees
|Bridging Loan Amount||Repayment Amount (excl. broker fees etc)|
|Bridging Loan Amount||Loan Repayment Amount|
First-charge bridging loans are regulated by the Financial Conduct Authority or FCA, meaning that the lender must follow a number of important operational rules. However, the same rules may not apply in the case of second-charge loans – consult the Financial Ombudsman Service directly if you encounter any issues.