Busting Four Bridging Loan Myths05/11/2021
There is a lot of fear surrounding bridging loans; from the fear of losing your home and high interest rates to pricey exit fees, it can seem like an expensive and risky endeavour.
But it doesn’t have to be scary. The bridging market and the public perceptions surrounding it have evolved in the past decade, and it is now viewed as a short-term solution that offers customers quick and flexible access to funds. Many applicants use this versatile product to cover renovation costs or put a deposit down on a new house.
At B-Advised, we will discuss your options with you, shine a light on common misconceptions and ensure that you have a strong exit strategy so you can be confident in your choice.
Here are four common fallacies about this increasingly popular type of loan:
#1 I need to have a good credit score
Many lenders understand, especially after the hardships of the pandemic, that many customers have difficulty paying debts on time due to redundancy, sickness and other unavoidable life events.
Lenders tend to be more concerned with where your funds are coming from and that you have a strong exit plan in place, rather than focusing on your imperfect credit history.
#2 A bridging loan is a last resort
“Aren’t bridging loans a last resort for people who have been unable to secure finance elsewhere?”
This is a question we hear time and time again, and the answer is no, it doesn’t have to be a last resort! We have worked with a number of property professionals and developers who opt for bridging finance first and foremost above other types of loan so that they can meet their short-term requirements without the burden of Early Repayment Charges (ERCs).
#3 It’s expensive
While this may have been true in the past, the heightened demand for short-term loans means that lenders are now offering bridging finance at competitive rates.
Also, bridging finance can often benefit the borrower; by funding a renovation project through bridging finance, you can increase the capital value of the property resulting in a net gain.
#4 It’s a complicated process
Bridging finance doesn’t have to be complicated. It is as simple as any form of secured lending. Essentially, this product bridges the short timing gap between the purchase and sale of properties. It is a form of finance that gets you from A to B. Bridging take days to obtain, unlike mortgages that can take months, and has a short term of one year or less. For more information on the different types of bridging loans, give our friendly team a call.
The UK bridging loan market has tripled in the past ten years and it is no surprise given the quick process, ability to borrow large sums and the flexibility of loan terms and interest rates.
With a clear and achievable timeframe and definite exit strategy, it can prove to be a viable and flexible option for both property buyers and developers.