Bridging gaps with short term property finance
Often clients have gaps between property purchases and permanent finance that need filling. This is where short term property finance comes in in the form of a bridging loan. Bridging loans come in a few different forms and have uses all across the property industry. With the flexibility they provide obviously there is an inflated cost. But as property deals become more extravagant as time goes on, so has the bridging market adapted to facilitate the need for short term property finance.
To be clear they are not a mortgage. They are often done in the lead up to a mortgage or to bridge the gap between mortgages. The flexibility they provide means you can get one with the exit process being a full mortgage. Let’s go into more detail about them below.
How much do bridging loans cost?
This really varies depending on what you want to do. Say if you have a house you want to sell but have a purchase lined up. Often you can get a bridging loan done in this case to bridge the financial gap. You need the properties equity for a deposit but the sale hasn’t gone through and you can’t wait any longer. This is common bridging scenario.
It’s also good to note that bridging loans max out generally at 75% loan to value. Limiting what you could potentially borrow. One of the major downsides though is the cost. They charge interest on a monthly basis and roll it up. You could be looking at interest of between 0.5% to 1.5% a month. If you roll this up annually this can lead to a hefty amount of interest. You really do end up paying for the flexibility that they provide.
You should also be aware of the set up fees of up to 2% of the balance of the loan. This is something to consider as well when setting up. Obviously all of this is subject to your situation which we would advise you on.
Open and closed bridging finance
Let’s start off with the simpler of the two. A closed bridging loan is a set type of short term property finance. Closed meaning it has a set end date that you have to settle it by. Normally this will be available to someone who has a set date to exchange contracts.
On the other side we have open which have no fixed date but typically run for a year. It’s clear to note that also with this strategy lenders will want to see a full exist strategy. You’ve got to think that lenders wouldn’t offer short term property finance without a way for you to get out of it. Otherwise they could see this go on forever and the interest payments crippling you. The exit strategy really is specific to each case.
Open bridging loans are more common than closed. Generally because most people with a fixed date are happy to wait for that all to occur and receive the money for it than take the expensive interest payments. Open bridging loans have more flexibility such as potentially a situation where you are using it to swiftly purchase an auction property and then get a mortgage at a later date. This would be suitable as auction cases have a time stamp on completion. And bridging loans generally can complete within days if everything moves swiftly.
Is short term property finance available for me?
Short term property finance as explained above is available for anyone. It really just depends on your circumstances…
Which is where we come in!
Full advice is key in scenarios like bridging finance. Purely because a lot of people don’t understand or consider fully the consequences. Or even whether this type of finance is actually right for their circumstance. A lot of people don’t realise you can get a let to buy mortgage which can capital raise for a new property purchase.
This is why our advice is key. We also fill in the application for you and have whole of market access meaning a broad and great panel of bridging lenders. Our advisors would be happy to help you secure bridging finance for your property if this was applicable to you. And we would guide you through the process from start to finish, doing applications on your behalf and presenting you with the offer at the end. If you needed a mortgage doing to close the short term property finance we can also arrange that.
Short term property finance isn’t all we do. We pride ourselves on being able to take care of all our clients needs when it comes to financial advice. Whilst advising on mortgages we also do investments, pensions & insurance. We can arrange your short term property finance and even do your building and contents when it’s done. We take care of you fully.
On top of this we have a fantastic panel of solicitors that we recommend for all legal processes. With us there really is no need to go anywhere else, we sort it all for you.
Get in touch with us today to discuss your needs.
Equity Release plans are not right for everyone. and it is important that you fully consider your options and receive independent financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.
Remember that taking an equity release plan is generally a long term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without penalties.
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