Bridging loans used as a back up option
Sometimes plans do not always work out as hoped, something that can prove to be very financially damaging. To help avoid or limit problems when plans do not always come together, steps can be taken to set up a back up plan. Bridging loans are often used as a back up solution after things have gone wrong, but when time is crucial it is often a good idea to already have a bridging loan standing by, ready to save the day.
A typical example of when a bridging loan can act as a safety net would be at a property auction. When buying residential investment property at auction it is usually most advantageous to purchase the property directly using a buy to let mortgage. This is clearly most beneficial for convenience and costs. In addition once a property has been purchased most buy to let mortgage providers will only provide a mortgage after 6 months, making it even more advantageous to put a buy to let mortgage in place at the start.
However, when purchasing at auction there is only a short period of time available to complete the purchase. This is normally 28 days or 20 working days, so finances need to be in place quickly and similarly the legal and conveyance side of things also needs to be dealt with swiftly and efficiently.
When planning to use a buy to let mortgage to fund an auction purchase it is often an important consideration to have a bridging loan available as a possible back up option in order to avoid the loss of the property and any deposits. It is best and strongly recommended to have any buy to let mortgage facilities agreed and in place before bidding at auction, however this is not always possible. The main problems arise when bridging loans become a bail out option when the property being purchased is in need of some repair, therefore due to the poor condition of the property the mortgage provider refuses to lend.
Bridging loans can be used to complete the purchase and once the work has been completed, and in most cases 6 months has passed, a buy to let mortgage facility can then be put in place to repay the bridging loan and provide a suitable long term finance option.