Bridge loan or bridging main purpose is to provide short-term cash for the purpose of a real estate transaction until permanent financing can be secured. As the name suggests, bridging finance in London is mainly used to bridge the cash gap for the completion of the real estate commercial transactions. It is taken for a rather short period of time normally between two weeks and twelve months with the main aim of moving towards an exit strategy or financing for a longer term. These loans are generally repaid when the property is being refinanced by the means of a traditional lender or when the property is being sold.
Characteristics of Bridging Finance
It is important to understand that Bridging Finances aren’t generally regulated. The interest rate for a bride loan over a period of 12 months is approximately 15% (1.25% for a month). The loan to value on properties typically does not exceed 80% for the residential properties and 65% for the commercial properties like retail, offices or industrial which is based on the market value. The bridging finance in London might either be open or closed. The open ones have no fixed time period for the completion of the loan whereas the closed ones have an arranged time period for the loan to end.
Advantages of Bridging Finance
There are several advantages related to bridging finance. Listed below are a few of them.
- One of the reasons as to why bridging finance is much favored is because the finance is strictly for a short period of time. While comparing bridging loan to a mortgage taken from a bank, you would see that the mortgage is long term financing option with which long-term expenditure is related. The bridging finances can be taken for a shorter time of period like 1 week and can be extended for up to 12 months.
- Bridging finance in London enables the person to purchase property rather When a bridging loan is taken through a mortgage lender, it is completed generally within two weeks which has no comparison to a residential mortgage which gets completed within 2.5 months.
- It also helps in improving the credit profile significantly if you succeed making all the payments on time.
- It guarantees the quick sale of the house wherein no mortgage offers or broken chains has been pulled by the lenders.
- This kind of finances can be secured rather quickly so as to purchase a property wherein the main aim is to get finance for a longer term when a person is ready for it.
- The bridging loan makes you an efficient cash buyer which in turns improves your power of negotiation for any future purchases.
- Chances of losing the property you want to purchase can be avoided because of the subject to sale clause present in your contract and of course the lengthy waits.
The best option would be to consider seeking a financial advice from a mortgage broker who has enough experience in this industry. They would tell you if opting for a short term finance would be the right option for you.