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Understanding How A bridging loan Works
A short term property loan almost always requires that you offer some sort of security for the mortgage. You could offer up commercial or private property that you own or other substantial collateral. Short term property finance is a short term loan which is secured by your business. This is usually arranged by getting a loan on the new property, and taking out a second mortgage on the property being sold.
Whilst researching short term property finance you will come across the terms closed bridge and open bridge. In principle a closed bridge is where the 'exit route' or 'settlement source' is already arranged typically where contracts have been exchanged but the funds are not going to become obtainable in time. On the other hand, an open bridging mortgage means that there is not a confirmed repayment method. As with most things financial, there is a grey area between the two. The most important things is to make sure you are arranging the right finance for your circumstances.
Because the need for short term property finance will often crop up suddenly and without warning, it is a good idea to establish a relationship with a bank before the actual need arises. When you do this you can arrange to be pre-approved for a specified mortgage dependant on the value of any security offered.
Who uses A short term property loan
A bridging loan can typically be used for any genuine commercial purpose as a short-term measure. Because of the short-term nature of the loan however you should expect to pay more interest and higher fees than with a long term loan. A short term property loan is increasingly used for property development including site aquisition, self-build projects and business conversions.
How Bridging finance Works
Lenders make their profit by charging interest across the life of funding. With short term property finance the shorter the loan period the less interest they earn, as a result the rate may be higher. A bridging loan can be structured so that there is no need to make interest payments each month, the interest is effectively paid in advance with any over payments repaid when the mortgage is redeemed. A useful feature of bridging finance is that the client can repay capital at any time, thus reducing the outstanding balance and future monthly instalments.
Short term property finance can be used for a variety of purposes such as:
- Bridging finance is being used more often for for property development including site purchase, self-build projects and property conversions.
- To raise capital for any purpose, pending a sale or refinance of the security property.
- To avoid bankruptcy of other financial crisis by releasing the equity in a property
- Probably the most the usual use of a bridging loan would be connected to buying a property, short term property finance gives you an agreed amount to help you bridge the gap between selling and buying your property.
- Buy to Let investors negotiating discounts for quick completion.
- Provide temporary funding for the purchase of a 'defective' business, pending completion of repairs.
Because bridging finance can be based on the Open Market Value of the property it is very common to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of a short term property loan to most business investors who are often able to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the loan. Typically the term for a bridging loan runs from a few days to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to accommodate your needs.
Where to go for Bridging finance
There are now more a short term property loan lenders in the UK that there have ever been, so rates are coming down and terms are becoming more flexible. When dealing with a a short term property loan broker do not be afraid of asking for the terms of the mortgage to be explained in plain English. You will often be quoted a broker fee and a banks arrangement fee. The interest rates and any repayment charges should be made clear at the outset The best way to secure short term property finance at the most favourable rates and terms is to work with a UK Business loan Broker who understands the ins and outs of bridge loan. Short term property finance can either be based on the limited sale value of a business or the Open Market Value (OMV). The inadequacy is simply down to the preference of an individual bank, a specialist commercial broker will be well aware of the inconsistency and should ensure that this is made clear to the persona applying for a loan.
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