According to the website BridgingTrends.com, the biggest reason for applying for a bridging loan is mortgage delays.
There are a number of reasons why people may want bridging loans, and BridgingTrends.com published an infographic in May 2016 detailing statistics for bridging loan requirements during Q1 of 2016. It states that buying property at auction accounted for 8% of bridging loans, 17% were for business purposes, 21% for refurbishment and 9% for re-bridging. By far the largest reason at 42% was mortgage delays, with the remaining 3% for ‘other’ reasons.
Mortgage lenders use automated systems to process mortgages, but it can still take between five and forty days for a mortgage to be processed. This delay can result in a buyer failing to complete a house purchase. A bridging loan can be used as a short-term solution to complete a house sale while waiting for the mortgage to be processed.
More complex mortgage applications, or ones where the borrower has supplied incomplete information, will further delay the mortgage process.
Bridging loans are much quicker to arrange than a standard mortgage. Many lenders can approve a bridging loan in a few hours, and the loan can be completed in a matter of days.
The Bank of England’s Prudential Regulation Authority, is proposing to create new standards for buy-to-let mortgage lenders. This could result in buy-to-let mortgages taking longer due to increased paperwork. If this happens, landlords will increasingly rely on bridging loans for short-term finance.
Due to competition amongst lenders, bridging loans are available at low interest rates.