You can use a bridging loan for multiple purposes, including paying for property secured at an auction, financing the refurbishment of a property, or buying new property without having to wait for the sale of your existing property to be completed.
A bridging loan is a short-term lending option used to finance a purchase or investment while waiting for funds to become available from a remortgage or the sale of something else. Bridging loans are secured loans. This means you need to secure a high-value asset, such as property or land to apply for a bridging loan.
There are various ways you can use a bridging loan, and this blog will cover five reasons why you may need one.
You can use a bridging loan to fund the purchase of a new property. You may want to buy a property with the sale of another property, but instead of waiting for the sale to be completed, you can use a bridging loan to fund the new property. Once the sale of the property has been finalised, you can use the money to repay the bridging loan.
When you have agreed to purchase a property at an auction, you will typically pay a 10% deposit at the auction and the rest is due within 28 days. Since the application process for a standard mortgage can take longer to complete, use of a bridging loan can be a good idea to ensure you don’t miss your completion deadline. Once your mortgage application has been approved, you can use it to repay the bridging loan.
It can be difficult to get financing from a traditional lender to do refurbishment or renovation on a property as the lender may view it as unsuitable for mortgage purposes. If the property needs light refurbishments or renovation work, a bridging loan may be suitable.
Property developers or buy-to-let property investors may find bridging loans particularly useful to improve the property before renting it out to new tenants. The bridging loan can be repaid once the property has been renovated and a traditional mortgage has been secured.
When buying commercial property, you may need to access funds quickly. Taking out commercial mortgages can be complex and involve a long process. And if the process takes too long, investors are at risk of losing their deposits if the sale falls through. A bridging loan can be helpful when buying commercial property since funds can become available to you within a short time frame.
As mentioned before, traditional mortgages can take time to be approved and for the funds to be available. This may place you at risk of losing a deal on a property if you fail to have financing ready in time. In this sort of situation, a bridging loan is ideal since it can cover the period between the purchase of a property and the approval of the long-term mortgage. Once the mortgage is approved, you can use the money to repay the bridging loan.
Due to the shorter term and higher interest payments, it is important to consider the risks of taking a bridging loan instead of a traditional mortgage before you apply.
We would strongly recommend seeking the advice of a qualified bridging loan broker to guide you through the process and make sure that a bridging loan is the right option for you.