What Are Bridging Loans?
Bridging loans are considered a short-term finance facility most commonly utilised for bridging short-term gaps. It mainly applies whenever the purchase of a completely new property needs to be completed before selling an existing property. These are the situations in which you can reap benefits by utilising a bridging loan.
You can make use of this fund in completing the purchase. And you need to repay the amount using the proceeds that you get from the sale of the existing property. But, there will be the requirement for adequate equity in the existing property if you are looking forward to taking out a bridging loan for this particular purpose.
Along with funding short term finance gaps, you can also use this loan to buy a new property before finding a buyer for your existing property.
Current Property Market And The Use Of Bridging Loans
As the property market is currently in a depressed state, most sellers are delaying placing their property on the market. They are waiting for the price to improve to get the best results. There is only a limited selection of properties available for sale.
Therefore, whenever buyers discover their dream property at a bargain price, they become desperate to secure its purchase. The depressed market also suggests that there are also some great bargains to be had. And, in case the existing property of a buyer has not been sold, they can opt for a bridging loan. It will help them get the funds needed to complete the new property purchase.
Importance Of Bridging Loans In Funding Renovation Of Properties That Are In A Poor Condition
Many of the properties available for sale are in a poor state. In such situations, the potential buyers can experience many issues if they seek to fund the purchase by using a mortgage facility. These issues mainly arise because the mortgage providers consider these properties unsuitable security due to their poor state.
The property's value is significantly impacted if it is in poor condition. It is only available to cash buyers, thereby restricting the number of potential buyers for the property. In such cases, the owners can benefit from focusing on improving the property.
This approach will help transform it into more suitable security for mortgage firms. But, again, to carry out improvements, you will need money. And, you would be able to raise this amount by making use of a bridging loan. The best part about this is that you can repay the amount once the property has been sold.
Importance Of Bridging Loans In Funding Renovation Of Properties That Are Already In A Good Condition
Similarly, those whose properties are in good condition can also need to carry out modernisation or other improvements in their property before selling it out. These groups of people also focus on turning to bridging loans to fund the work that is needed to be carried out.
Only by making some simple improvements would you be able to enhance a property's desirability drastically and thereby boost its value. The value of old properties can effectively be increased with the help of renovations. So, why not do that? Go for it, and a bridging loan will help you fulfil your objectives.
Essential Things To Consider Before Taking Out A Bridging Loan
Before you take out a bridging loan, you should essentially consider the below-mentioned things:
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Not only the rate of interest but consideration of the overall cost of the loan is also significant at the time; you are comparing products from distinct providers. People often go for the lowest interest rate, but many lenders will charge hefty exit fees, fund management fees and other hidden costs from your end.
So, before you proceed, you should always ask for a complete breakdown of the overall cost of taking the loan. It will make it much easier for you to compare distinct providers.
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The main risk while taking out a bridging loan is that you will not be able to repay the loan at the term end. So, it would help if you always considered how the loan would be repaid upfront. If you are planning to sell your property, you should ensure that the loan provides you with an adequate amount of time to find a buyer and the sale to complete. Also, ensure that the proposed exit is viable.
Final Thoughts
So, it is evident from the above section that you would be able to improve your property to achieve higher prices and faster sales by using bridging loans.
Have any other related queries? UK Property Finance, a specialist provider of bridging finance and property development finance loans, can resolve your queries and offer you the best deals. You can use their bridging loan calculator to know about the best rates they are inclined towards offering.
Contact them today to learn more.
