Mike Collins Mortgage Expert explains what bridging loans are , and how they could be beneficial in the current economic environment.
Why a bridging loan can be beneficial in times of high interest rates
Bridging loans are loans that have no interest which are usually offered to those who need to access funds immediately. It’s basically a bridge between the incoming debt and credit being made available.
The short-term lifeline can help anyone looking to purchase property outright or at auction or to undertake improvements, complete building works and much more – especially when the time is tight.
Mike Collins has 17 years of experience in financial planning. He says: With nearly half of homeowners losing their home purchase to foreclosure, it is important that borrowers are able to swiftly move. A bridging loan may assist them in this.
“Interest Rates for Bridging Loans are higher than other Finance Products. I’ve been asked many times recently whether people need to be concerned because interest rates have increased.”
The simple answer is that a bridge loan will typically be paid back within a few months. This makes the interest more feasible and the loan more affordable. Here I will provide more details about Bridging loans, and how they could be beneficial in the current climate.”
Bridging loan interest rates
They can be fixed, bringing stability providing you can pay your debts on time for the period that you’ve agreed. Variable loan rates tend to fluctuate according to the Bank of England base rate currently in the market is 2.25 percent (Sept 2022).
The higher the interest rate the more expensive your repayments will be.
The rates will differ based on the reason for the loan. Bridging loans for land or business are more costly than those for home purchases.
The demand for buyers is high. This causes delays in the purchase and conveyancing process, which is why it is more crucial to get bridging loans.
It is essential to remember that interest rates are calculated on a monthly basis whenever you look at them. This is because the rates are only 9-12 months.
Cash is available fast
If time is of the essence and it is, as it usually is in the above projects, bridging loans are much more convenient to arrange than secured loans or mortgages.
Bridging loans can be released within three days.
Since the lender will be dependent on your exit strategy, it’s easy to set up. It is the method you will use to pay back the loan after the loan term is over.
You can apply for one even If your credit score is not great
Like most people, your credit rating determines whether you’re eligible to receive a bridging loan. However, it can also influence the interest rate or fees you might pay.
If you’re a poor creditor It isn’t impossible to obtain a loan. In general, lenders will emphasize the property’s value more than the credit score in determining rates.
There are no long-term checks since the loan is secured against an asset of worth.
Help in repairing broken chains
Recent research indicates that one in five applicants needed a bridge loan because of a damaged chain. The chain broke, which caused delays in their purchase and led to the need for them to get loans to bridge the gap.
With closing times currently at around four months in the average, bridging loans can be an option to make sales.
The current increase in interest rates could cause a drop in the demand of buyers and, in turn it could result in a drop in the number of bridging loans. But , in the meantime the loans mentioned above could prove vital for many buyers, property developers and others.
Whatever bridging loan option you pick, make sure that they are part of the Financial Conduct Authority. This ensures that any complaints particularly when they concern significant amounts of money can be handled in accordance the FCA guidelines.
The reason why a business should make use of a bridge loan
A bridging loan is a short-term loan option that can provide businesses with the funds needed to pay for immediate expenses or capitalize on a momentous opportunity. These loans are able to bridge the gap between purchasing the property or asset, or receiving longer-term financing. Businesses can use a bridging loan for a quick purchase of equipment or to buy a property for the fulfillment of a new contract. Bridging loans can be a convenient method for businesses to gain access to capital and aid in their growth.
What can I do to get an UK bridge loan
For a bridging loan in the UK the applicant will have to contact a lender that provides this kind of financing. Many banks and financial institutions provide bridging loans, and you can also find specific bridging loan companies. The lender will examine your creditworthiness and financial situation before making a loan.