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Exploring The Advantages of Bridging Finance for Property Investors

Bridging finance is an interim financing option designed to help property investors fill or bridge funding gaps until a long-term option is arranged.

Commonly referred to as a bridge loan, this type of financing can, for example, act as a funding stopgap between the sale of one property and the purchase of another. A bridge loan can also make it easy for investors to afford to buy and refurbish a property, refinancing it later at market value.

Bridge loans are a much more affordable finance solution than long-term mortgage rates, especially compared to current rates in the UK, and when used correctly can actually turn out to be profitable.

In order to be approved for a bridging loan your property, which is your loan collateral, will be valued using the LTV (Loan to Value) ratio. This means the amount of your loan will be compared with the appraised value of the property.

Some lenders offer funds equating to as much as 90% LTV, with a low 10% deposit, allowing you to start climbing the property ladder quickly.

There are numerous advantages and benefits to be had using bridge financing, which are set out below:

The Benefits of Bridge Financing

Flexibility

The number one benefit of a bridge loan is its flexibility. Unlike a traditional mortgage, bridging loans don’t follow tick-box style lending criteria. As a result, bridge loans can be shaped around the borrower, and a variety of property types. Since bridging finance is often tailored to suit a borrower’s unique financial situation, they can be used to:

  • Cover the costs of a property
  • Fund renovations and improvement projects
  • Bridge the gap between property sales and acquisitions 

Beyond their flexible approval criteria, bridging loan products also come with flexible interest payments. The borrower often has the option of rolling up the interest so it is paid at the end of the loan term rather than monthly.

Last, but by no means least, bridge financing has flexible loan terms varying from between three and 24 months.

Fast Financing

Another reason to consider the use of a bridging finance product is its fast financing capabilities. Rather than taking months to process, a bridge loan can provide funds in as little as three days. So, if you’re looking to purchase a property immediately, bridge financing makes it possible to reduce your chances of being outbid or caught in an extensive property chain.

Profit Off Your Property

It’s a little-known secret that securing a bridge loan for the right transaction can be highly profitable. For instance, buying a property at below-market value to refurbish and later sell it at market value. 

Zero Monthly Repayments

While not always the case, there are often no monthly repayments involved with bridging finance. This is undeniably beneficial because a bridge loan is designed to provide cash when it’s needed most, not create more expenses. Instead, borrowers can expect to repay their bridging loan interest when the loan is repaid, making it far more manageable.

Prevent Financial Loss

In several circumstances, bridging loans can be utilized to prevent financial loss. This includes situations in which major bills must be paid. For instance, a bridge loan could be used to cover an unpaid tax bill to prevent damage to your credit-worthiness. Should you incur such credit damage, you could face difficulties with borrowing in the future.

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