Introduction
Property bridging involves the use of a bridging loan to cover the short-term financial shortfall between the purchase of a new property and the sale of an existing property or the securing of long-term finance. Traditional loans often take longer to secure and have stricter requirements. Bridging loans offer borrowers an alternative to this by providing fast and flexible access to finance.
It is crucial to understand how bridging loans work and when they should be used.
Advantages
One of the primary advantages of bridging loans is that they offer the borrower fast access to finance in order to take advantage of an opportunity. In this way, bridging loans are an attractive alternative to traditional finance as the funds can be released quickly, allowing the borrower to act on an opportunity that may expire by the time they can secure traditional finance. Another advantage is the flexibility that bridge loans offer. Given the emphasis placed on the exit of the facility, they can be used for a number of different situations, as long as there is a guaranteed, defined exit.
Moreover, the bridging loans can be structured in such a way that interest is rolled up and only becomes due at the end of the facility. This allows the borrower more freedom in regard to their cash flows. Another advantage of bridging loans in the UK is that they are a widely accepted form of finance. This means that there are well defined processes required in order to secure a bridging loan. In fact, there are numerous online calculators that can assist borrowers in understanding the facilities that are available to them.
Disadvantages
While there are a number of advantages to securing a bridging loan, it is crucial to understand their constraints before applying. Firstly, as a result of their risk profile and short term, bridging loans often carry higher fees and interest rates. While interest can be rolled up to the end of the loan term, it is still important to understand the extent of the interest when entering the facility.
In addition to this, the borrower should have a good understanding of the importance placed on the exit strategy of the loan. If the borrower is unable to satisfy the exit requirements, they could be liable for additional fees and/or loss of their property. With this in mind, the borrower should ensure that the exit is well planned and achievable.
Mortgage Brokers In The UK
In the UK, a large number of mortgages are acquired through the assistance of a mortgage broker. Independent Mortgage Brokers can offer an important service to borrowers by leveraging their industry knowledge. Brokers have a well-established network of lenders and financial institutions. They are able to leverage this network to ensure the borrower is approaching the best lender for their specific requirements.
Moreover, brokers have in-depth knowledge of the lending market and application process. In this way, they are able to assist clients by providing them with assistance throughout the application process, from collating documents to assisting in the negotiating process. Brokers can assist their clients in navigating the intricacies of the mortgage bridging loans market to ensure they get the best facility in the most efficient way.
Conclusion
Bridging loans are an established form of finance in the UK with a well-defined application process. Generally, bridging loans are secured with the help of a mortgage broker, as this ensures that the borrower has a full understanding of the environment and application process. It is therefore important to consider how a broker can help you with your bridging loan application.