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Risk. It’s been the watchword in the mortgage market since 2008 and despite the industry undergoing quite the recovery since the downturn lenders are still fearful of any deals deemed to be even slightly risky.
Borrowers who need to move quickly are particularly out of luck as tightened criteria and increased scrutiny means the application process can be more cumbersome and time consuming.
But bridging lenders have seized the opportunity to come to the rescue.
Bridging loans are short term loans that can be accessed very quickly. The processing time for a bridging loan can be as little as 48 hours – significantly less than a standard mortgage application. They are designed to act as a short-term solution, however, as they typically come with a very high rate of interest and often have hefty administration fees attached.
When are they used?
As one would expect, bridging loans are ideal for situations where finance is needed quickly but where an alternative source of finance is lined up.
A buyer looking to purchase a property at auction, for example, who will only have 28 days to pay the balance on the property would be a perfect candidate for bridging finance. Similarly, if a homeowner is in a chain and doesn’t want to miss out on their new house just because their existing property is taking longer to sell than expected, bridging could be used.
Borrowers who are looking to buy a house for which a traditional mortgage would not be suitable could also look into bridging. Most mortgage lenders won’t offer mortgages on properties that don’t have a working kitchen or bathroom, for example, so a property investors looking to buy a run down home and renovate it could use bridging finance in the first instance before refinancing.
What are the alternatives?
Without an exit strategy bridging finance can be extremely expensive so it’s worth exploring other options unless you have a clear route out of the loan. Standard second charge loans could be a viable alternative. Second charges have much lower interest costs and borrowers won’t need to refinance quickly.
For borrowers looking to bridging finance because they need to complete on their new home before selling their existing property Let to Buy could be an option, provided you have enough equity in your current property to remortgage and raise the deposit for the new home.
You would have the lender’s permission to let out your existing property and use the income to cover the mortgage and other outgoings. An occupied property might sell better and you will then be free to take out a mortgage for your new home without the need for a bridging loan.
An experienced mortgage broker will be able to help identify the best value solution for your circumstances.
For more information about sourcing bridging finance, speak to us today on 0800 980 8777.