Recently there has been a significant uplift in the popularity of investors seeking bridging loan finance, some pundits are quoting as much as a 30% rise. Personally I think this is largely down to the state of the economy and the ever increasing issues that banks have with liquidity. When you make it tougher for folks to borrow money from traditional sources, then they will, if motivated enough, go look elsewhere. Figures suggest that in 2007 gross lending was two thirds more than it is now.
Investors now see bank stocks as a higher risk and are moving their money elsewhere, further compounding the banking issues. Political problems across Europe are just adding to the mix. Proving once again that the banking industry problems often have far reaching knock on effects in sometimes unexpected places.
Bridging Loan Finance Has Easier Credit Criteria
One of the great things about bridging loan finance is that providers are much less strict on lending criteria than traditional banks. ( Which is another reason why it costs more to use bridging.) Generally you would need property with good equity or other forms of assets that can be used as collateral. Poor credit ratings are not such an issue, and income multiples used by high street banks for mortgages are not used in bridging loan finance.
Security for the bridging loan finance is the underlying priority factor for the lender.
What Uses Are There?
Another point worth noting about bridging loan finance providers is that, unlike banks, they don’t place rules on what you can use the funds for. Increased borrowing costs and higher loan to values offered by banks for buy to let lending is further helping to increase the use of bridging loans as alternate finance. Banks are no longer trusted to have our best best interests at heart.
Residential developers often use bridging loan finance as a stop gap to buy property at auction whilst awaiting a buy to let mortgage to come through, or, during refurbishment for a quick turn around sale which enables the bridging loan swift pay back. ( Read our finance page for more info on how to fund a refurbishment project using bridging.)
As demand for rental property remains high, cost of property is falling and yields on larger multi-let properties are currently even greater, landlords are trying to add to their portfolios using more diverse lending strategies, and bridging loan finance is playing a large part in that. The speed and flexibility bridging finance offers, means that loans can be arranged in as little as 48 hours if need be. Having ready available cash is a major advantage for a developer.
It should be said though, that bridging loans are not cheap, and are not a long term solution. Costs are normally in the region of 1-2% per month. It’s a short term way of getting fast cash whilst having other funds ready to back it up and pay it off later. Having said that, it can be a great way to get your property developments back on track, or to help fund more investment properties.
You may also be interested in our article about How To Save Tax On Your Property Income.