Is it a good idea to get a bridging loan?

Is it a good idea to get a bridging loan?
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    If you are looking for a smoother and faster property transaction, whether that’s for commercial investments or purchasing your new home before the old one sells, then a bridging loan can be a helpful financial tool.

    Bridging loans work by providing property buyers and investors with a fast, short-term finance solution to ‘bridge the gap’ between property purchases. They are beneficial for creating seamless transitions, preventing delays, and ensuring timely purchases for commercial and residential properties.

    At One, we have years of experience helping clients access affordable short-term loans to achieve their property-buying goals.

    In this blog, our experts break down the meaning of bridging finance, what it is, and how it can benefit you with your property purchase. Keep reading to learn more about the world of bridging loans, or contact our specialists today for bridging advice.

    Why do people use bridging finance?

    Property developers, investors and individuals can use bridging finance for many property-related transactions. They offer a faster and often more flexible solution than traditional finance.

    Here are some of the most common reasons why you may choose to use a bridging loan:

    • Property purchase: If you’ve found your dream home, a bridging loan can help you facilitate buying a new property before selling your existing one. This is a quick and hassle-free solution for preventing a broken property chain.
    • Auctions: When time is of the essence, a bridge loan can help you quickly fund the purchase of a property bought at auction.
    • Property investments: For property developers looking to quickly seize profitable investment opportunities, a bridging loan can be a great help. Whether you’re looking for a quick buy-to-let purchase or a larger refurbishment project, our bridging finance services cover many investment needs.
    • Business purposes: In some cases, limited companies may wish to use bridging finance to bridge financial gaps or invest in time-sensitive opportunities.
    • Bad credit issues: When borrowers have credit issues or financial difficulty, specialist bad credit bridging lenders can offer a more accessible finance solution as they focus primarily on the property value and exit strategy.

    Are bridging loans easy to get?

    Most bridging loans are generally easier to obtain than a traditional mortgage due to their short-term nature and flexibility.

    However, the ease of getting a bridging loan depends on various factors, such as equity in the property you secure the loan against, your planned exit strategy, your credit history, and your overall financial stability. You may also find that the loan-to-value of the transaction influences approval.

    While bridging finance makes it relatively easy to borrow money compared to long-term loans with comparative interest rates, applicants should always research lenders, understand terms thoroughly, and have a solid plan in place to increase the likelihood of approval.

    Consulting with a specialist broker can also provide valuable insights and help you secure the most suitable loan for your situation.

    At One, we will pair you with the most knowledgeable bridging loan brokers who can tailor their search to your specific needs. They can assist you in finding alternative lenders that you may not have considered and will ensure you are in the best position before accepting a loan.

    What are the pros of getting a bridging loan?

    If you are looking for a short-term finance solution that ticks all your boxes, then considering a bridging loan is a good idea. Bridging loans can offer several advantages, making them a popular choice for many borrowers.

    Quick and fast access to funds

    You can benefit from faster access to funds thanks to the less rigorous checks from bridging loan lenders. This means you could potentially secure funds in a matter of days to assist with urgent financial needs, time-sensitive investments, or seizing immediate opportunities in property or business.

    In contrast to a traditional mortgage, bridging loans prioritise speed, leveraging efficient approval methods, and focusing on equity rather than extensive credit checks.

    Allows buyers to purchase unmortgageable properties

    For property investors and individuals looking for a development project, bridging loans can support you where traditional lending cannot. Most bridging loans will enable buyers to acquire unmortgageable properties by offering short-term financing solutions based on the property’s potential and value rather than its current condition.

    So, if you are looking to make a profit or see potential in a more worn-out property, then this type of short-term loan can facilitate your goals.

    Flexibility

    When it comes to buying property, flexibility is often key to getting ahead of the competition. A bridging loan offers more flexibility to fund a variety of purposes, from property acquisitions and refurbishment to bridging financial gaps and supporting property investors.

    Additionally, repayment plans are tailored to your individual needs. You can either make monthly interest payments or opt for deferred payments, settling the entire amount at the end of the loan. This adaptability makes bridging loans ideal for diverse financial needs.

    They can enable you to customise the loan structure according to your specific requirements and financial situations, enhancing overall flexibility and usability.

    What are the cons of getting a bridging loan?

    While bridging loans are great for providing short-term finance solutions, they can come with their own unique drawbacks, such as their cost and complexity. As with any type of loan, it is important to consider all aspects that may impact what type of loan you get.

    Bridging loan fees

    Unexpected fees can be costly, so it is vital to know exactly what you might be paying for when looking to get a bridging loan. Bridge loan fees vary widely and typically include arrangement fees, valuation fees, legal fees, early repayment charges, and exit fees.

    At One, we’ll help you understand the various fees involved with bridging loans, ensuring you factor in the extra cost when working out your budget. With a clear plan, you can get the best bridging loan for your budget and decide how to repay the loan well in advance.

    High-interest rates

    Most loans come with some type of interest added. Bridging loan interest rates will vary depending on the security and perceived risk the loan has attracted and are typically higher than traditional mortgages. This can result in a higher cost when taking out the loan.

    Bridging finance interest rates are currently 0.55% – 1.5% monthly on a 75% loan to value (LTV). However, higher loan values could be available where additional security can be offered.

    Risks associated with a bridge loan

    The repayment strategy agreed upon at the start is one of the most significant risks with any bridge. If the property does not sell within the agreed timeframe, enabling you to clear the property outright, or you are unable to secure alternative finance to clear the bridging loan, there is a risk that the property could be repossessed and sold to clear the outstanding bridging loan on the existing property.

    Get in touch with One today

    If you are looking for a faster financial solution for purchasing residential property quickly, then you should consider getting a bridging loan. At One, we will connect you to the right specialist broker who can quickly and clearly guide you through your options.

    With our extensive knowledge and experience in bridging finance, we can match you with the correct financial expert to suit your individual requirements, helping you navigate the bridging loan landscape and swiftly secure your funding.

    Contact our experts today to discuss your property plans!

    Conclusion

    Getting a bridging loan can be advantageous for immediate financial needs, property purchases, or other related business ventures. They are typically faster than other types of finance and have more flexibility for your needs.

    Deciding whether a bridging loan is for you will take consideration and thorough research. This can often start with speaking to the right specialist bridging loan broker. By understanding the bridging loan cost, terms, interest rates, and repayment plans, you can secure a bridging loan that aligns with your financial goals and personal financial circumstances.

    Frequently asked questions about bridging loans

    For more information about bridging loans and whether you should get one, please take a look at some of our frequently asked questions below.

    Mark Piper
    Mark Piper

    Mark is the senior advisor at One Commercial Loans and has a wealth of experience in bridging and property finance.

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