Everywhere in cities and urban areas, development in property guarantees business growth and financial prosperity. Therefore, investment in the development of the property is a justified decision from all aspects. However, the availability of funds is a problem that can be solved by a bridging loan for property development.
If you have already acquired a mortgage on your property, then you can opt for 2nd charge bridge loan, which is also available on different terms in the lending market.
In this post, we will present a complete guide on bridging finance. So, you can decide to choose this option in the lending market. Read this post entirely. It will educate you.
Bridging finance is a popular term in the lending market when a borrower needs to bridge the gap of funds on the occasion of property transactions. These finances are for short terms ranging from 12 months to 18 months. Generally, these loans fulfill the timing requirement for property transactions.
A regulated bridging loan for property development is a specific loan in bridging finance where a loan contract is protected under Finance Conduct Authority (FCA). It can be either first charge bridging loan or 2nd charge bridging loan.
In the property market, securing a property needs the availability of funds that are stuck on another property. Most of the borrowers need bridging finance until the other property is sold. During that period, the bridging loan covers the finance requirement.
Below here are the examples where bridging finance comes handy.
Bridging finance is called either open or close due to repayment terms. If all contracts have been signed, but payment is delayed for any reason. However, the timing of repayment of bridging loan is clear, then bridging finance is called a closed bridging loan.
On the other hand, if timings of repayment are not clear and subject to an open market, then bridging loan is called an open bridging loan.
Bridging loans are short term loans that are repaid when one property from transaction properties is sold or refinanced.
There are many lenders who provide bridging finance or a bridging loan for property development.
Traditionally, banks were the prime lenders of bridging finance. However, due to the financial crisis, they have reduced such projects.
The role of bridging finance lenders is mostly performed by specialist property lenders who have developmental managers and case managers who help them to decide quickly. First charge bridging loans are easy to get. However, the 2nd charge bridging loan is difficult to acquire.
In short, private companies, small investment funds, and high-net-worth individuals are prime lenders of bridging loans. They focus on high-interest deals.
Some bridging loans are regulated. But not all loans are regulated. If borrowers place his home as a security for loan acquirement, then it falls under Finance Conduct Authority’s rules and regulations. All houses of borrowers or immediate family members fall under the Mortgage Code of Business. That’s why a loan on the personal house is a regulated bridging loan for property development.
On the other hand, bridging loans for property developers and buy-to-let landlords are not regulated because these loans do not fall under FCA rules.
A bridging loan lender requires the following things in a borrower.
A bridging loan will be issued depending on risk factors. If you apply for an open bridging loan, then the risk for the lender will be high. So, you will be charged a high-interest rate, along with acute repayment plan terms.
On the other hand, if you apply for a closed bridging loan, then the risk for the lender will be less. Therefore, you can get low-interest rates.
Moreover, the cost of a bridging loan also depends upon payment terms. If you agree to pay back in 12 months or less, then you will be charged with less rate. On the other hand, if you intend to pay in 24 months, then your interest rates will go higher.
These loans are not decided in days. But it will take weeks. However, if you have all security requirements ready, then after agreeing on terms, you can get a bridging loan in less than a month.
If you are a property investor and progressing your investments, then bridging finance can help you get a solid position in the real estate market. Moreover, your cash flow will be organized, and you can expect revenue in a timely manner from your property transactions. Have a good day.