Bridging loans and short term lending set to grow during 2012
Although obtaining finance has been difficult during the 3 years since the start of the credit crunch, short terms loans and bridging finance has grown considerably during 2011.
Traditionally bridging loans have been used to bridge a financial gap, typically the gaps that can occur when buying and selling a house. Quite often bridging loans are used to hold and maintain a sale chain in place by providing the funds required to complete a purchase at a date before the sale of an existing property completes. Even though the property market is currently quiet, bridging loans being used to maintain a place in a sale chain have been very popular at during the last 24 months. This is often because the property market is struggling and sale chains have been increasingly difficult to maintain due to the problems associated with obtaining the required mortgages.
One of the main reasons for the growth in bridging finance or short term loans is due to the difficulty in obtaining other sources of finance. Businesses, investors and property speculators who would normally have been able to secure funding for their projects through their banks are increasingly being declined and therefore forced to seek alternative finance elsewhere.
Bridging loans offer more flexible underwriting as the bridging lenders are usually just concerned with the value of the property that is being offered as security and also the way in which the bridging loan will be repaid to them. Income evidence and a clean credit history are not a main concern and most bridging providers are very keen to lend.
Bridging finance has become a popular alternative to the banks simply because finance is available through bridging when the banks have declined. Many short term bridging finance providers have considerable knowledge of the property market and are therefore well placed to provide finance for properties that are to be repaired, restored or converted as they have a good idea about its future sale potential and are comfortable to lend using this type of property as security.