Bridging loans are short-term flexible loans that are traditionally used to complete property purchases, but there are other uses for them too.
Completing a house purchase
The main use for bridging loans is when property purchases need to be completed quickly. A typical scenario is when someone is purchasing a new house, but the sale on their existing house has not completed. A bridging loan can be used to complete the purchase of the new property. Without the bridging loan, the purchase of the home is at risk. The bridging loan can then be repaid after the existing house has been sold.
An advantage of a bridging loan is that it can be arranged quickly, much more so than a conventional mortgage. A bridging loan can be used to complete the sale of a house until the mortgage funds are available.
Some buyers apply for a bridging loan without a buyer for their existing house. This is a risky strategy as it can take a long time for a house to sell. Most bridging loan lenders will not provide loans to complete purchases unless an existing house is under offer.
Buying at auction
Another common use for bridging loans is when buying property at auction. Most auctioneers require at least a 10% deposit soon after a winning bid has been accepted. A bridging loan can be used for this deposit, then repaid once more long-term finance has been secured.
Houses can be bought as investments in rundown conditions then renovated before reselling at a profit. A bridging loan can be used to fund the work.
If you buy a derelict or semi-derelict property, most mortgage companies will not provide a mortgage for the purchase. A bridging loan can be used to complete the purchase. After renovations have been completed the property will probably be eligible for a mortgage.
Landlords often use bridging loans to fund the conversion of large properties into smaller units before tenants move in.
Commercial bridging loans
Commercial bridging loans, in a similar way to individual bridging loans, can be used to complete property purchases when the business needs to expand to larger premises or set up a regional office.
Businesses can also use bridging loans for seasonal cash flow slumps and to purchase stock or equipment.
How to apply for a bridging loan
The best place to apply for a bridging loan is through a broker. You will need to provide evidence of when and how you can repay the loan and security will be required, which is normally the property involved in the loan. Due to competition in the bridging finance market, interest rates are low, and there are normally no penalties for early repayment of a bridging loan.
Contact Ascot Mortgages to discuss your borrowing needs. We specialise in matching our client’s individual needs to the best bridging loan deals. Ascot Mortgages can usually give a provisional offer within a matter of hours, with the funds available in days.