If you are a first-time buyer of real estate, you can make the most of your investments by using a bridging loan to make real estate transactions. A bridging loan is a short-term type of financing that is secured on either a commercial or residential property.
How Bridging Loans Work
Usually, a bridging loan is utilised on a piece of property not considered habitable. An example of this type of real estate is an auction property. Therefore, this type of short-term loan is often used when buyers or investors are involved in auctions. In addition, this financing can also be used to fund renovations or conduct transactions that are related to property development. A chain break permits you to finance real estate when you have to wait for a sale.
Bridging finance can also be used for short lease extensions or for the payment of a tax bill. Just about any person or entity can use this type of financing. Individuals, even first-time buyers, can take out a bridging loan, as can Ltd companies. A pension, such as an SIPP, can secure a bridging loan, as can a trust. The finance can be drawn down on day one and repaid the next day, if needed.
Therefore, the terms of the bridging loan will naturally depend on the circumstances and requirements of the client. If the funds are being dispensed to finance a property development, then the lender will look at the planned itinerary for the build and designate a contingency for the designation of the loan period.
Typically, a term of 24 months is the longest time a bridging lender will allow for financing. The amount that a lender will finance will also depend on the circumstances. For instance, maybe you are seeking to break a chain on the sale and purchase of your residence. Therefore, you will need to secure a loan to buy your new property until your real estate is sold. You might consider taking out a bridging loan in this particular instance. Most bridging loans for amounts up to 75% can be granted. With the addition of extra security, they can be raised up to 100%.
The loan to values on bridging loans for commercial real estate continue to increase and, like residential loans, can be secured for 100% funding with added security. Loans of this type can be used for a build or refurbishment. In the case of a property refurbishment, the lender needs such information as the purchase price, the schedule and cost of the work and the gross development value or the final worth of the planned work.
When you choose a lender, make sure the company is an accredited member of the Nationals Association of Commercial Finance for Brokers, or NACFB. A lender can provide commercial borrowers with lending solutions that range from £100,000 to over £10 million.
In the past, bridging loans were offered by very few lenders and were issued in an unregulated environment. However, today’s market is competitive and the interest rates are lower. The average bridging loan rate today is around .65%pm, with some loans offered with no exit fee for the redeeming of a loan amount.