Five Common Uses for Bridging Loans
Bridging finance can be used for almost any legal purpose. The vast majority of UK bridging loans, however, are used for transactions involving residential or commercial properties & land.
One of the most appealing characteristics of bridging finance is the way in which it can be arranged and accessed within a short period of time. This can be indispensable for homebuyers, property developers and investors, who may be looking to take advantage of time-limited purchase opportunities.
Flexibility is also a major point of appeal, as a bridging loan can be used to fund more types of property purchases and renovation projects than almost any other type of loan.
But which are the most popular applications of all for bridging loans in the UK?
1. Buy Before You Sell
Bridging finance makes it possible to purchase a new home or commercial property, before completing the sale on your existing property. If your dream property comes to the market but you have not yet sold your current property, a bridging loan can be used to prevent the chain from breaking. The loan is then repaid, normally in one lump sum, when your current property sells for market price.
2. Buying a Property at Auction
Properties often sell at auction for less than their true market value. Those who buy properties at auction, however, are required to pay the balance in full within 28 days. Arranging a conventional mortgage or property loan within this timeframe is normally out of the question, which is where bridging finance can help. In some instances, bridging loans can be arranged and accessed within a few working days – often as little as 24 hours.
3. Performing Renovations before Selling
Homeowners, investors and developers often choose to leverage the untapped value of the properties they sell, by conducting renovations before selling. Re-pairs, extensions and home improvements in general can significantly increase the market value of the property, often by much more than the costs of the renovations. This enables the bridging finance used to fund the project to be repaid when the property sells, with the remaining proceeds being retained as profits.
4. Purchasing Nonstandard or Derelict Properties
Most conventional lenders are unwilling to lend against properties that are un-inhabitable or considered ‘non-standard’. This can make it difficult to source funding for a property you intend to renovate, repair, restore and subsequently resell. Bridging finance is far more flexible and can be secured against almost any type of property – including those considered uninhabitable.
5. Stop Repossession
Lastly, a competitive bridging loan can also be used to put a halt to repossession proceedings. Bridging finance secured against your home can be used to repay your outstanding mortgage balance, after which you can sell your property on your own terms and ensure you receive its full market value. You can then use the proceeds raised to repay your bridging loan, avoiding heavy financial losses and major damage to your credit history in the process.
For more information on any of the above or to discuss popular applications for bridging loans in more detail, contact a member of the team at UK Bridging Loans today.