What Are Bridging Loans

What Are Bridging Loans
Bridging loans have come into their own as​ a​ form of​ finance for the​ enterprising and shrewd borrower .​
The bridging market has grown exponentially over the​ last few years and is​ now estimated to​ be worth over £2.5 billion and growing at​ 25% per year .​
Although it​ still has a​ role to​ assist borrowers release cash quickly it​ is​ increasingly being used to​ help property developers and investors.
As well as​ traditional uses for bridging loans,​ such as​ residential property,​ there are lenders who will fund semi-commercial and full commercial properties .​
This is​ despite commercial property being perceived as​ having an​ increased risk factor .​
Although the​ risk has not diminished ,​ the​ demand for this type of​ borrowing has forced lenders to​ respond .​
This demand is​ fueled by the​ growth in​ interest in​ commercial property by professional investors,​ and the​ rising incidence of​ businesses getting into financial difficulties,​ thus needing to​ raise capital quickly.
Because bridging lenders take a​ flexible approach to​ clients with bad credit they will not usually require a​ credit check,​ however they will always need to​ be satisfied that the​ property being offered as​ security is​ suitable.
There have been a​ multitude of​ new entrants to​ the​ bridging market which has forced some of​ the​ more established lenders to​ re-shape their lending policies .​
The old,​ tarnished image has been eroded with new dynamic lenders who are willing to​ utilize the​ latest IT advances and employ the​ highest levels of​ customer care taking their place.
At the​ core of​ all bridging loans is​ the​ ratio of​ the​ loan amount compared to​ the​ value of​ the​ asset,​ usually referred to​ as​ the​ Loan to​ Value(LTV) and this is​ the​ single most important criteria when a​ lender considers a​ proposal for finance .​
This is​ partly why brokers are used for the​ majority of​ bridging loans .​
a​ broker will know which bridging lenders will require a​ credit check and which will consider applications from clients with bad credit histories,​ this means that a​ broker should be able to​ help find the​ right type of​ funding.
Some of​ the​ more common uses of​ bridging finance include:
If a​ person buys a​ property at​ auction they have to​ complete the​ purchase within 28 days .​
Using a​ mainstream lender it​ would be almost impossible to​ organize drawdown of​ funds in​ time,​ however bridging loans can easily be arranged in​ this time frame.
Buying Property at​ Undervalue:
Approaching a​ mainstream lender with a​ proposal to​ purchase a​ property at​ under value is​ pointless as​ they will only consider the​ purchase price .​
However bridging loans can be raised against the​ value of​ the​ property and not the​ purchase price .​
This means that theoretically it​ is​ possible to​ purchase a​ property at​ discount without putting any money into the​ deal.
Debt Relief:
Business people often get into financial difficulties due to​ cash-flow problems .​
These can be a​ result of​ trading problems or​ even unexpected tax demands,​ where there is​ equity in​ a​ freehold property bridging loans are an​ ideal solution.
Currently there is​ no Code of​ Practice,​ or​ indeed any self-regulating body to​ govern the​ activities of​ bridging lenders,​ although there have been several attempts to​ form one .​
The Council of​ Mortgage Lenders (CML) will accept bridging finance lenders as​ members,​ as​ will the​ National Association of​ Commercial Finance Brokers (NACFB) but neither organisation is​ geared to​ examine the​ specifics of​ bridging loans .​
Where the​ loan is​ required to​ assist with the​ purchase of​ a​ family home the​ Financial Services Authority (FSA) have very strict controls over who can lend money and under what terms.
Just like a​ conventional mortgage,​ bridging loans carry some serious legal consequences should a​ borrower not make payments,​ or​ fail to​ clear the​ loan at​ the​ agreed time .​
One clause to​ be on​ the​ look out for is​ one which entitles the​ lender to​ charge excessive penalty interest if​ any payments are late,​ although most will make a​ charge,​ it​ should be reasonable .​
It is​ also important to​ make sure you​ fully understand the​ implications of​ redeeming the​ loan early.
Most bridging lenders are now well organized,​ customer focused organizations,​ the​ on-going threat of​ increased regulation has seen the​ death of​ some of​ the​ unsavory business practices which means that bridging loans should continue to​ be a​ valuable tool.

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