Bridging loan solicitors have extensive experience in dealing with bridging finance and the process involved in obtaining a bridging loan. They will act swiftly and efficiently to ensure the bridging finance you need is obtained quickly and with minimum stress to you.
Looking for experienced Bridging Loan Solicitors? Whether you are buying a new home or investing in property, and regardless of whether it’s in a personal or company name, we can help.
For FREE no strings attached initial advice and a conveyancing fee quote, call our specialist Conveyancing team now on FREEPHONE 0800 1404544.
What is bridging finance?
Bridging finance is a type of borrowing used to ‘bridge a gap’ in funding. Bridging loans are intended to be a short-term solution, and the term of a bridging loan can be anything from one day up to around 12 or 18 months. The exact term will depend on the lender and your circumstances, and some lenders may consider longer terms.
Bridging loans are usually a type of secured loan – that means you will need to use an existing asset (usually a property) as security for the loan.
So, whilst they are a helpful ‘quick fix’ to cover a shortfall in funds, you have to be careful – you risk losing the secured asset if you fail to repay the loan. Since bridging loans are often needed at short notice, they are usually offered at a higher interest rate than other forms of borrowing, such as a mortgage.
Haven’t got your bridging loan arranged yet? Looking for mortgage broker specialising in this area? Give us a call – we can introduce you to one of the brokers we know who really understand bridging finance.
Bridging loans and property investors
As well as helping people buy their dream home,bridging loan finance is commonly used by property investors and developers as a short-term loan to manage what may be a financial gap between buying and selling property, or until they can get hold of permanent funding, or the next stage of financing becomes available.
In fact buy to let investors and developers are the main users of bridging finance.
Bridging loans are often used by investors and developers when buying property in auction, or to buy properties that need significant renovation and refurb work.
It’s also regularly used by investors to provide short-term cash flow while a project obtains planning permission. In this scenario, bridging finance can also help to provide pre-construction finance before switching to a more long-term development loan once planning has been granted.
Buy to let and development finance obtained in this way helps borrowers get the cash they need quickly to snap up that below market value property bargain.
Here at Bonallack & Bishop not only is Senior Partner, Tim Bishop, an active property investor himself, but our bridging loan solicitors are part of a specialist property investment team acting for investors and developers nationwide.
Click here to read more about our property investment team
How much can I borrow with a bridging loan?
The amount you can borrow depends on various factors. Some lenders will lend many millions of pounds, but the loan amount will be limited to the amount a lender is convinced you will be able to repay.
The most crucial factor a lender will look at when considering a bridging loan application is your ‘exit strategy’. You will need to present the lender with a clear plan detailing how you intend to repay the money by the time agreed.
In the case of property, a common exit strategy is to repay the loan either from the proceeds of sale or a remortgage. You need to be certain (and convince a lender) that you will be able to sell the property or that your prospects of securing a mortgage are strong. If your exit strategy turns out to be flawed, you risk losing the assets secured against the loan and paying considerable interest.
When can a bridging loan be useful?
Bridging finance can be useful in a range of situations, including –
· where you have found your dream home but have yet to sell your current house. In this situation, you may be able to use a bridging loan to buy the new property while you try to sell your old one. Your exit strategy in this scenario would ordinarily be to repay the bridging loan with the proceeds of the sale of your current home;
· if you want to buy a property which you cannot obtain a mortgage over because it has been deemed ‘uninhabitable’ by a mortgage lender. In this case, bridging finance may enable you to purchase the property and renovate it. You would then repay the bridging loan by selling the property or securing a traditional mortgage over it;
· to enable you to buy a property at auction where the funds are required quickly. Since a lender can often arrange a bridging loan within a matter of days, it offers a convenient alternative to other loans and traditional mortgages, which can take months to finalise. Your exit strategy here might be to repay the loan when you sell the house or take out a mortgage.
· bridging finance for property development as mentioned above
What are the pros and cons of bridging loans?
Bridging finance has numerous advantages and disadvantages which you need to consider before deciding to take out a bridging loan.
Some pros of bridging loans include the following –
· Can usually arrange bridging loans far more quickly than most other types of loans or finance. In most cases, we are talking weeks rather than months
· You may be able to borrow money in circumstances which make other types of finance unlikely; for example where a property is unhabitable and so cannot be mortgaged, or where you are buying a leasehold property with a short lease with a plan to extend that lease for example.
Click here to read more about lease extension
· The most important factor for a lender is that you have a realistic exit strategy. This means that you may be able to secure a bridging loan even if you are ineligible for other types of finance due to issues – such as a bad credit history.
But there are disadvantages and risks that go along with taking out bridging loans – and these include the following:
· Bridging loans are often offered at a higher rate of interest than other types of loans. And that could be more a problem if we are really past the era of rock bottom interest rates
· You face significant problems if you are unable to repay the loan. Higher interest rates mean that failing to repay the loan on time can result in you having to repay a far higher sum. Since the loan is secured, you also risk losing the asset used as security.
· In addition to the usual costs involved in property transactions, such as legal and valuation fees, most lenders charge additional fees on a bridging loan, including –
o ‘Arrangement fees’ for organising the loan. The arrangement fee amount varies between lenders but is often around 2% of the loan value;
o ‘Assessment fees’. Also known as a drawdown fee, this is a charge for accessing the money; and
o ‘Exit fees’, which fall due when you repay the loan.
Open and closed bridging loans – what’s the difference?
Closed bridging finance is used where you have a clear exit plan with known timings. An example of this would be in a delayed completion scenario – where contracts have been exchanged and both parties therefore legally committed to the transaction, but completion itself is delayed.
Click here to read more about Delayed Completion as a Property Strategy
Both borrowers and lenders usually prefer these kind of closed arrangements simply because they are more certain.
In contrast, an open bridging loan refers to finance where the timescale and possibly even the source of repayment the loan is less obvious.
How our bridging finance solicitors help you?
Bridging loan providers often require that you take independent legal advice from bridging finance solicitors.
They want to be sure that you are clear about the terms on which you are borrowing the money, particularly your repayment obligations and the interest rate.
Since bridging finance is often required at short notice, getting support from bridging loan solicitors with experience in the process will also ensure your application is dealt with swiftly and has the best chance of success.
Purchasing a property with the help of a bridging loan can complicate the conveyancing process. And that’s why when appointing a solicitor you need to make sure you have got someone on your side who really understands bridging finance conveyancing and has plenty of experience in this area.