The bridging finance market has grown dramatically in the last five years. Website Techround reported in November 2016 that in 2011, bridging finance was worth £750m a year, and in the last 12 months it has risen to £4bn a year.
There are over 40 bridging finance lenders in the UK and 100 brokers who arrange bridging loans. These figures demonstrate that bridging loans are a very popular way of raising short-term finance. There are a number of reasons for this.
Completing property deals
One of the main reasons for requiring a bridging loan is to complete the purchase of property. Applying for a long-term mortgage and completing the paperwork can take weeks. Property deals can be at risk if completion cannot be done within a set period. A bridging loan can be granted in principle in a matter of hours, and it is possible for the money to be available within 48 hours. The loan can then be used to complete the property purchase, and repaid when the long-term mortgage has been finalized.
A typical use for a bridging loan is when someone puts in an offer for a house, but has not sold their existing one. In order to complete the sale on the new house, a bridging loan can be used and then paid back when the existing house is sold,
It is often possible to find properties at auctions that go for less than the market value. Semi-derelict property that investors can refurbish and sell at a profit are often auctioned.
Most property auctioneers require a deposit of 10% of the value of a successful bid in order to secure the purchase. If a bidder cannot raise this amount from their own funds, then a bridging loan can be used for the deposit, and repaid when more long-term finance is acquired.
Many mortgage lenders are reluctant to lend on properties that are not habitable or need extensive refurbishment. Bridging loans are ideal for providing the funds to renovate property to a state that makes them eligible for a standard mortgage.
Landlords often use bridging loans to refurbish properties before tenants move in.
Non-property bridging loans
Though the majority of bridging loans are used for property purchase or renovations, businesses can use bridging for other purposes. Some businesses experience seasonal dips in their income, and use bridging loans to cover low cash flow until income rises again.
Bridging loans can also be used to purchase equipment for expansion purposes, and for stock.
Where to get a bridging loan
Bridging loans are available for individuals, businesses, and organisations. The lender needs to knows that there is a clear exit strategy that details when and how the loan will be repaid. Bridging loans are available from three months to three years.
At Ascot Mortgages, we have access to some of the best available bridging deals. Contact us today so that we can match your borrowing requirements to the best bridging loan deal.