With competition on the UK housing market at an all-time high, investors are beating a path to the doors of bridging specialists. Particularly when it comes to auction property purchases and off-market investments, bridging loans provide a fast, flexible, and affordable alternative to traditional home loans.
All of which has resulted in buoyant performance for the bridging sector over the past few years.
The latest figures from the Association of Short-Term Lenders indicate particularly strong quarterly performance for the bridging sector in Q2 this year. Up an impressive 23.2%, total completions for the three-month period came out at £1.1 billion.
Investors have come to rely on bridging loans to provide the fast-access funding they need to take advantage of time-critical property purchase opportunities.
“Bridging loans are a great solution when investors are looking to raise finance to consolidate borrowing into one place until a sale is achieved; grow and diversify a buy-to-let portfolio-use bridging finance to leverage capital or purchase a property at auction,” said Amar Khiroya, Principal and Co-Founder of Reim Capital.
“A bridging loan can be processed in 2-6 weeks, versus a traditional buy-to-let mortgage and which will take 10-12 weeks and investors can raise capital on existing assets — an investor may want to take a second loan against an equity-rich property to acquire another property.”
Even so, bridging finance is not without its terms, conditions, and clauses. This is the kind of small print that needs careful consideration — ideally under the supervision of an experienced professional.
Essential Tips and Guidelines for Investors Applying for Bridging Finance
The key to getting a great deal on a bridging loan begins and ends with finding a top-rated lender you can count on. However, it is still important to scrutinise the terms, conditions, and costs of every loan option on the table.
What matters most when comparing bridging loans is the total cost of the loan; there is a tendency among investors (and borrowers in general) to focus disproportionately on the monthly interest rate. A super-low rate of interest can be practically irresistible, but could also be augmented by administration fees, arrangement fees, completion fees, early exit fees, and other hidden costs.
When applying for bridging finance, it is always advisable to ask the provider to offer a clear and transparent disclosure of all costs. Along with a list of all fees and charges applicable, you should be presented with a single figure of how much the loan will cost you in total.
All with the guarantee of no additional costs or fees along the way — a formal, written quotation you can count on.
Focus on Flexibility
Before finalising a bridging loan agreement, the flexibility of the facility should also be discussed with the issuer.
Concrete assurances must be provided that the funds required will be made accessible as promptly as possible. Some bridging loans can take just a few working days to organize. However, processing times can be much longer with certain lenders.
The prospective early repayment should also be discussed, along with what happens in the unlikely event that the facility cannot be repaid on time. Will there be the option of extending the loan term without heavy fees, penalties, and potential credit score damage? Or does the lender demonstrate little to no flexibility in such scenarios?
If there are any terms, conditions, or clauses you either do not understand or are not 100% happy with, they must be discussed frankly and openly before applying. All of this should take place during your initial consultation, during which there should be no obligation or pressure to go ahead.
