2013 was the year when bridging finance transformed from an outlying financial product into an invaluable tool for investors and businesses, as well as one of the year’s most popular alternative investment products.
Meanwhile, industry figures show that gross bridging lending grew steadily throughout the year. In fact, bridging lending was more than four times larger than shared equity lending under the first five months of the government’s Help to Buy shared equity scheme.
Figures were buoyed not just by increasing market confidence, but by the emergence of bridging finance as a mainstream financial product. Increasing competition in the industry has compelled lenders to offer increasingly competitive and flexible products.
If last year’s figures are any indication, 2014 will be yet another great year for short-term secured finance. Its many uses include:
1. Breaking the chain
Property chains are frantic, fraught with nightmarish administration, deadline-keeping, late-night phone calls to solicitors and estate agents and more besides. If you’ve found a property but haven’t yet found a buyer for your current one, short-term finance can bridge the gap, allowing you to finance the purchase of the new property without the need for a sale.
With the introduction of the Mortgage Market Review in April, the mortgage application process may become even more long-winded, meaning this type of bridging loan might become more prevalent in the coming months.
2. Developing or refurbishing units without the needed capital
Renovating commercial, industrial or residential property can sometimes be a catch 22. You need the capital to renovate it, but can’t accrue the capital until the property is ready to rent out.
A bridging loan can allow you to renovate the units as required, even when you don’t have the necessary funds. The loan would be secured against the property, and repaid either by the sale of the property, or by income derived from letting it out.
3. Meeting transaction deadlines
Many financial transactions have a deadline that traditional finance avenues simply cannot turn around in time to meet. Bridging finance has a very fast turnaround time, allowing you to secure the funds in time to beat the deadline. Once the longer-term finance falls into place or you have secured the capital elsewhere, you can exit the bridging loan.
4. Benefiting from flexible interest payments
A start-up business may experience cashflow problems in the first few months, and sometimes it just isn’t tenable to make regular repayments until things settle. Bridging finance benefits from a variety of flexible, tailored interest repayment structures, which include ‘rolling’ the interest to the end of the loan period. Read more about it in this article: How you can pay your bridging loan interest.
5. Borrowing up to 100% LTV
Because of the difference between the purchase price and different market values, it may be possible to borrow more than the maximum bridging loan LTV without putting down additional security for the loan.
Different market values assume different time frames, generally ranging from 90 days to indefinite, to drum up enough interest and make enough improvements to a property to achieve the best selling price realistically achievable.
If you find a lender who will work to one of these values, you can borrow more than the 75% maximum. Read more about this here: Understanding your bridging loan LTV.
For more information about securing short-term bridging finance for the coming year, call us for free on the number above or make a bridging loan enquiry.