As the popularity of bridging finance continues to grow across the UK, more borrowers than ever before are setting their sights beyond the High Street. Both for everyday borrowers and commercial customers alike, various different types of bridging finance prove more popular than traditional loans and mortgages.
That said, bridging finance is like any other form of finance, in that it has its own unique advantages and disadvantages. Bridging loans can be ideal for certain borrowers in certain situations, but are not necessarily a one-size-fits-all solution.
Before applying for a bridging loan, therefore, it’s worth considering the ups and downs of this super-short-term lending. Not to mention, using a bridging loans calculator to assess your budget and explore the options available.
Bridging Finance: The Good
On the positive sides of the argument, bridging finance can be a preferable alternative to traditional loans in a variety of ways. Important examples of which include the following:
- There is no faster way of (legally) getting your hands on the money you need. Whether planning to borrow £50,000 or £5 million, the money could be made available within as little as five working days.
- Bridging loans often attach interest rates of less than 0.5% per month. When considering the fact that the average bridging loan is repaid within six months, this adds up to outstanding value for money.
- Lenders in the bridging sector demonstrate greater flexibility with both the property purchases they are willing to finance and the security they accept. This makes bridging finance ideal for buying properties in need of repairs and refurbishments.
- Eligibility is typically determined exclusively on the availability of collateral. Even with a poor credit history, it is still perfectly possible to qualify for an affordable bridging loan.
- For investors interested in purchasing properties at auction, it’s possible to arrange a bridging loan before agreeing to a purchase. After which, the balance can be transferred, and the property purchased outright within a matter of days.
- Bridging loan application processes as can be surprisingly simple, as the key determining factor in almost all instances is the availability of suitable collateral.
- When an unmissable investment opportunity presents itself, bridging finance can ensure it needn’t be passed up, due to the traditional complexities of organising mortgages or remortgage deals.
Bridging Finance: The Bad
As with all types of commercial and consumer finance, bridging loans are not without their disadvantages. Key examples of which to consider include:
- Bridging finance is exclusively suitable for ultra-short-term borrowing. Monthly interest rates lower than 0.5% are outstanding short-term, but could add up to a sizeable charge if the loan isn’t repaid promptly.
- The penalties and the consequences in general of failing to repay a bridging loan on time as agreed can be quite severe.
- It is not possible to qualify for a bridging loan if you do not already have sufficient equity/collateral to cover the cost of the loan.
- You will need to demonstrate a viable ‘exit strategy’ at the time of application, in order to qualify for the best possible bridging loan rates.
Realistically, therefore, you could argue that the primary disadvantages of bridging finance are similar to those of more conventional loans and mortgages. That being, you could find yourself facing difficulties if you don’t fulfil your side of the contract.
In all other instances, bridging loans have the potential to be fast, affordable and exceptionally accessible. Particularly when funds are needed as promptly as possible, there are few comparable options available that offer the same flexibility and affordability as bridging finance. – UK Property Finance