There was a time when bridging loans were only used to complete house purchases quickly. Although fast house purchases are still the main reason for using bridging loans, there are many other uses of which people are less aware.
If a lender repossesses property because of mortgage arrears, they will try to sell the property as soon as possible. This could mean that the property is sold cheap. Whilst this may cover the debt, there could be little or no money left for the owner.
A bridging loan can be secured against the property and used to repay the mortgage. The owner then has full control over the house sale and can hope to sell it for the full market value.
Many estates are subject to inheritance tax. Although the estate may be worth a lot, there is not always sufficient cash available to pay the inheritance tax on time. The majority of the estate could be in the form of property and other valuable assets, some of which will need to be sold to cover tax payments, so executors of an estate may be tempted to sell off assets quickly by reducing their price.
A bridging loan can be used to pay inheritance tax, then repaid after assets have been sold. This means that there is no pressure to sell assets quickly and cheaply.
Some properties can be bought at very low prices because they are in a derelict or semi-derelict condition. Most mortgage lenders will not provide a mortgage for a property that is uninhabitable. A bridging loan can be used to finance the refurbishment work in order to make the home fit to live in. It will then probably be eligible for a standard mortgage based on the increased value of the property. When mortgage funds are available, the bridging loan can be repaid.
Commercial properties purchases are subject to VAT tax, which can amount to many thousands of pounds. A company registered for VAT will be able to reclaim the tax on their next VAT return but must have sufficient cash to initially pay the VAT. A bridging loan can be used to pay the VAT with the loan repayment made as soon as HMRC has refunded the VAT.
Raising short-term funds
Businesses can use bridging loans to raise short-term cash. This can be used to purchase stock or equipment, or for temporary low cash flow periods.
Quick and flexible
Bridging loans are quick to arrange and extremely flexible. If you need a bridging loan for an unusual reason, lenders will listen to your proposal. The main criteria they are looking for is security for the loan (usually property), and a sound exit strategy for when and how the loan will be repaid. Interest rates vary depending on the risk assessment of the loan.
Talk to Ascot Bridging today to discuss your bridging loan requirements. We will normally give you an initial loan decision in a day or less.