Bridging Rates at All Time Low
The cost of bridging loans have been reducing over the last 5 years. Rates now start from 0.49% pm and therefore they are no longer seen as a lender of last resort.
Also their use has changed from just the traditional chain breaking bridging loan. Bridging loans are mainly used to provide quick, short-term capital to fund property transactions.
A recent survey shows that the use of bridging loans are changing.
- 27% were used for refurbishments. This is where the client wants to purchase an uninhabitable property. Lenders will not usually lend on a property that doesn’t have a kitchen, bathroom, central heating etc. Investors use a short term loan and refurbish/renovate the property before selling it or putting it onto a buy-to-let mortgage at the enhanced value.
- 25% were for mortgage delays and chain breaking. A bridging loan enables a seller of one property to purchase another property before the sale of their existing property. Also where a purchaser is in danger of losing the house of their dreams because of a delay with their mortgage provider.
- 15% were for other purposes. These include where a property needs a lease extension. Where a property has a short lease, it is unlikely that a client would be able to obtain a mortgage. A bridging loan could be used to extend the lease, before arranging a term mortgage. Others include where an investor needs to secure a property quickly to obtain an advantageous price, or developer needs to purchase a property or land prior to getting planning permission.
- 13% were re-bridges. These occur when there is currently a bridging loan in place that is about to expire or move on to punitive rates of interest.
- 11% were for business purposes. There are a variety of business uses for bridging finance. These range from having to pay an urgent tax bill to expanding the business.
- 9% were for auction finance. Here completion needs to take place within 28 days and traditional financing is not normally available within this time frame.