Bridging loans making deals happen
In the years since the credit crunch and the start of the economic downturn bridging finance has increased in popularity. Over the last two years the amount of money borrowed through bridging loans has increased by over 50 per cent.
There are many reasons for the increased activity in the bridging finance market. One reason is the decreased activity in the housing market which has made it more difficult to buy and move home. Trying to get a sale and purchase completed in order to move house can have many more problems than just before the credit crunch.
Since the credit crunch trying to find a buyer for your home, then obtain a decent sale price and most difficult a suitable mortgage, has all become much more difficult and complicated. All these added problems have made the whole process of trying to complete when buying and selling a home at times impossible.
Bridging loans have often provided a solution that has enabled completions and sales to happen. The depressed housing market has led to people having to be more flexible with completion dates in order to allow purchases and sales to happen. Bridging finance is often used to bridge these gaps between the purchase of a new property and sale of the old one, allowing a sale chain to become possible.
Due to lenders tightening their criteria many property investors have found it difficult or impossible to find finance facilities through their previous sources. Consequently they have turned to bridging finance and the much more flexible lending criteria offered through bridging loans.
Many property investors will use bridging finance to help fund the purchase of property that is run down and in a poor state of repair. They may also use a bridging loan to provide the money required to carry out building and restoration work to a derelict property. Bridging finance is often used to fund purchases of or restoration work to run down properties because many traditional lenders will not provide finance secured on this type of property.
However, once the work has been completed more lenders will then consider providing finance secured on it. This enables property investors to raise more traditional long term finance facilities, such as buy to let mortgages, which can be used to repay any bridging loans taken out to purchase and restore the property.
In these difficult financial times bridging finance has allowed some property developers to continue trading.