Bridging loans used to help with property sale and purchase
Bridging loans are specialist lending facilities that are an ideal source of borrowing when you need to raise money for a short period of time until funds are released following the sale of your old property. It can be very stressful to be stuck between the purchase of a new property and the sale of your old one!
Without bridging finance an alternative option would be to have two mortgages. The problems with doing this are that the funds raised are only for short term and therefore when the required mortgage facility is cleared there may well be high redemption charges to pay. Another problem is that lenders take into consideration an applicant’s income and also their expenditure. They have strict income to expenditure ratios to consider and it is very possible that due to the costs of the additional mortgage, although only being for a short-term, the affordability calculations may make two mortgage facilities impossible to obtain.
Bridging loans are more flexible, having more flexible income to expenditure ratios. Some bridging loan providers do not have any income calculations whatsoever. Therefore their underwriting is quick and far more flexible.
The bridging loan providers are more interested in the equity used for securing the loan and ensuring that there is a suitable exit route in place. The exit route is the method by which the bridging loan is going to be repaid.
Bridging loans also tend to have more flexible lending criteria because they are only for the short term and do not have to consider an applicant’s ability to make repayments over the long term. Therefore they are not so bothered about their client’s employment status or future income potential, or about how good they have been at paying their debts in the past.
Using bridging finance when buying and selling property allows far more flexible buying and selling because deals can be reached before a buyer has been able to find a buyer for their old property.
Because there is not such an urgency to sell the old property in order to buy a new one, any low offers made to purchase the old property can be turned down as there isn’t the pressure to accept it that is normally caused by a sale being required before being able to proceed with the purchase of the new property.