Bridging Finance - Q Cast Asset Finance
Main menu:
Bridging Finance
A bridging loan is a type of short term property backed finance. They are often used to fund an asset over a short period of time whilst seeking a longer term solution. Bridging loans are usually offered in between 2-24 months with the loan repayable in full at the end of the term.
Who Are Bridging Loans Aimed At?
Bridging Loans can be used by buyers who are struggling to sell their existing homes quickly enough, or they can also be useful for someone who is part of a collapsed chain; the loan then has the ability to save the remaining buyers on the chain. This type of loan could also help someone looking to buy and then sell quickly after renovating a home, or people buying property at auction who need to get their finances in order and cannot arrange a traditional mortgage in time.
When Should You Use Bridging Loans?
You can use your Bridging Loan for most legal purposes. There are many different reasons why a Bridging Loan may be the most appropriate way to gather funds. For example, if a property is uninhabitable in its current state and needs to be refurbished, or if a property’s title is defective. Since mainstream lending criteria have tightened, the demand to take out Bridging Loans has increased, particularly in the London area. If you are unsure whether this is the option for you, please speak to one of our Bridging Loan Advisors.
Other Reasons for taking out a Bridging Loan may be to:
- Save a property from repossession.
- Pay an unexpected bill, such as a tax bill.
- Finance a property that is currently inhabitable.
- Finance a property with a defective or complicated title.
- Use a property as security for a business loan
- Finance a property for which a change of use is required, e.g. switching from a Guest House to an HMO licensed property.
Types of Bridging Loan
Closed-Bridge Loans
A Closed Bridging Loan refers to a facility that will be cleared on a specific date. This would typically apply to those loans which be cleared by the proceeds received from the sale of a property. N.B. Contracts will have been exchanged and a completion date set. Closed bridging loans are a lower risk to lenders because they know exactly how and when they are going to be repaid.
Open-Bridge Loans
Under circumstances whereby a loan is required until a property has been sold but the sale date is unknown, these facilities are known as Open Bridging Loans. Unless contracts have been exchanged, a lender cannot know when the loan will be repaid. This type of arrangement may have a time limit of 6 to 12 months placed on it and funds can be repaid anytime during this period.
How does a Bridging Loan work?
When a Bridging Loan is what you require, the lender would typically look to lend for a period of between 2 weeks and 24 months. This is because the cost of Bridging Finance is typically higher than that of a standard loan. Thus, the longer the loan is outstanding, the higher the fund value (by way of interest) you will need to allocate to your project. Although many lenders will not consider offering a remortgage until the property has been owned for at least 6 months, this is not the case with lenders operating in the Bridging Finance arena. Therefore, if the property is suitable for mainstream lending after a shorter period, there are still lenders who will consider lending for less than 6 months. You will also be able to raise capital if the value of the property has seen a significant increase.
Interest Rates and Fees
This will depend on how robust the application is and which lender is willing to lend. Rates can range from 0.5% to 2.5% per month. We will provide you a full Illustration outlining all costs before entering the contract.
Think carefully before you secure a debt or mortgage on your property because your home may be repossessed if you do not keep up the payments on the debt or mortgage secured on it.