For many people, bridging loans can represent a short-term solution to a temporary problem. However, they shouldn’t be seen as a long-term answer to your financial worries. Instead, bridging loans should be used to bridge the gap between a debt coming due, and the main line of credit you need becoming available. In certain situations, pressing circumstances can allow for bridging loans to act as a short-term source of credit.
These types of loans can be very valuable when it comes to allowing for a property purchase that couldn’t be otherwise possible. However, as you would expect with any other short-term solutions, these loans are also significantly more expensive in terms of interest fees.
How do Bridging Loans Work?
In simple terms, bridging loans are designed to help people finish the purpose of a property before their existing home has been sold off. These loans allow people to get short-term access to new amounts of money at a higher than usual rate of interest. Aside from helping people who are moving home to bridge the gap between completion and sale dates in a chain, this type of loan can also be very useful for someone planning to sell their property quickly after they renovate their home.
Since many building societies and banks have recently become more reluctant when it comes to helping people get the money they need in the wake of the latest financial crisis, there has been an influx of new lenders emerging in the market. However, it’s worth noting that interest rates are often high and hefty administration fees can be placed on top of everything else. Indeed, many optional borrowers should think carefully before taking out a bridging loan.
Who Should Get a Bridging Loan?
Bridging loans are a unique and complicated form of credit. In most circumstances, these solutions should not be considered by someone who is simply looking for a short-term line of credit. Instead, bridging loans should be aimed towards amateur property developers and landlords, including people who are considering purchasing a property at auction when a mortgage is needed.
In certain circumstances, bridging loans may occasionally be offered to asset-rich or wealthy borrowers who want to access a more straightforward form of lending on residential properties. At the end of the day, if you are unsure whether a bridging loan is the right option for your specific needs, then you might need to consider talking further to a bank or building society about your reasons for seeking credit, or ask for help from a financial advisor.
Bridging loans can be used for a wide range of different reasons – from investing in properties, to dealing with buy to let investment procedures. However, recently, there has been a significant recent trend among some borrowers to utilise bridging loans when private banks and high street lenders take too long to process the applications involved for larger home loans. Some borrowers are also looking into bridging loans as a simpler and less frustrating solution to mainstream lending options.
Should you Get a Bridging Loan?
The important thing to keep in mind is that while a bridging loan may originally seem tempting, if you’re thinking of taking one out for yourself, then you’ll need to think carefully about your available exit strategy. For example, this might involve thinking about your choices in regards to mainstream mortgages and buy to let mortgages instead.
The problem is that you may always be rejected from a mortgage with a mainstream lender if you have already taken out a bridging loan, which means that you are at risk of losing your home. At present, the financial conduct authority is concerned that advisors may still be recommending this form of loan to some borrowers when it isn’t really the best solution for their needs. In other words, if you haven’t used this type of finance before, then you should consider it with absolute caution, as there are regularly hefty and hidden legal fees to consider, as well as additional administration fees that aren’t always clear.
In basic terms, it’s worth remembering that the costs of a bridging loan can quickly and easily mount up and sometimes become overwhelming to those involved with them. As such, you should not consider a bridging loan to be an alternative to other mainstream lending solutions.
Where to Look for Bridging Loans
Today, bridging loans can be accessed from a range of different lenders in various shapes and sizes. The best way to protect yourself when getting a bridging loan is to look around and ensure that you’re getting the best possible interest rates for your existing circumstances.
It’s also important to make sure that you choose a lender that has been previously approved by the FCA, so you can reduce your chances of being scammed by a lender who doesn’t have your best interests at heart.