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A vital aspect to consider before beginning a property project is ensuring you’re in a stable financial situation.
Making sure you have the money to cover any purchases and renovation costs is a must before you start, but what are your options if you need a little extra to tide you over? Regarding property development finance, one of the most popular options is a bridging loan.
To learn whether it’s the right choice for you, we’ve compiled the pros, the cons, and everything in between.
What Is a Bridging Loan?
Bridging loans are typical in the world of development finance. A short-term loan, their name comes from their ability to bridge the gap when you need a quick injection of money that’ll be paid back quickly. Whether you’re looking to snap up a property before your mortgage is approved or need extra renovation funds to tie you over until payday, this could be the financial option for your project.
The Perks of Bridging Finance for Property Projects
If you’re on the hunt for property development financing, there are a fair few loan options available. What makes a bridging loan different?
Super Quick to Arrange
Undoubtedly the biggest perk of taking out a bridging loan is how quickly it can be arranged. Getting approved for your loan is simple, making it a stress-free option if you’re in the middle of a property project.
You’ll also receive your loan very quickly. Once approved, your money can be in your bank within a few days, depending on how much you take out. From start to finish, a bridging loan is all about speed. When you’re buying a property or flipping a house, that can make a massive difference to the success of your project.
Flexible Terms Available
Terms of bridging loans will vary from lender to lender. In general, you can expect flexible terms when considering your options. Many lenders will agree to offer 75%-100% of a property purchase price and present different options for paying back your loan regarding instalments and time. Bear in mind that bridging loans are designed to be paid back quickly, so most terms apply for up to 1 year.
Multiple Financial Uses
Other loans, like mortgages, will often be given out for particular uses, such as buying a habitable property. Bridging loans, however, are flexible in their uses and can be used for anything from auction property purchases to construction work, ensuring your entire project is financially covered.
More Lenient Approvals
Because bridging loans aren’t as strictly regulated as traditional mortgages, the terms for approval can be a lot more lenient. For example, people with poor credit scores, a lack of financial history, or low income can still apply for bridging loans with a good chance of being approved.
Project-Based Loans
Rather than credit score and income, your lender will likely base your bridging loan on your project. If they see that it’s a viable opportunity and has the potential for success, you will probably be approved for the money you need. This levels the playing field, allowing anything with a bright idea the chance to give it a go.
Large Loans Available
You might be surprised you can borrow millions of pounds when opting for a bridging loan. Higher loans can take a little longer, but many lenders will ensure the money’s in your bank account within a week.
Are There Any Risks Involved?
Bridging loans are a fantastic option for quickly getting your property project off the ground. With flexible terms, easy approval, and large sums of money available, it’s not hard to see why so many people opt for a bridging loan when looking into property development finance.
The only thing to be aware of is that bridging loans come with higher interest rates than traditional mortgages. Of course, if you’re paying your loan back quickly, this doesn’t have to be an issue, but just be sure you factor in the extra costs of interest and any other additional fees before taking out a loan. It’s better to be sure you can repay your lender before the money lands in your account.
How Can a Bridging Loan Help Your Property Project?
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Bridging loans have several purposes in property projects. They can help you break the chain if a property sale has fallen through, ensuring you secure the house you’re interested in regardless of how quickly your property sells. They’re also a great way of quickly finding the funds for a bargain property you want to flip.
For unmortgageable properties, a bridging loan is a suitable option. Once you’ve secured the property and made it habitable, you can apply for a mortgage to replace the bridging loan.
Similarly, if your mortgage is taking some time to be approved, a bridging loan gives you an option for quicker approval so that you can get your project started. Once you have your mortgage, you can use some of it to repay the initial bridging loan.
Final Words
With super quick approval and a wide range of uses, bridging loans are a great choice if you’re looking for a short-term financial solution. For people looking to get their project off the ground quickly, they’re well worth talking to a lender about. Remember that those interest rates can rack up, so always ensure you can pay the money back before committing.
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