Bridging loans used to improve properties to achieve higher prices and faster sales
For many years bridging loans have been used to help facilitate sales and purchases of properties. As a short term finance facility they are commonly used to bridge short term gaps when the purchase of a new property needs to complete before the sale of an existing property. In these circumstances funds to facilitate the purchase are raised using a bridging loan, which will be repaid using the proceeds received from the sale of the existing property. To take out a bridging loan for this purpose there will need to be sufficient equity in the existing property.
In addition to funding short term finance gaps, bridging loans are also increasingly being used to enable property hunters to buy a new property before they have even found a buyer for their existing property. With a depressed property market many sellers are postponing placing their property on the market until prices improve, which sometimes means there is a limited choice of properties available for sale. In addition, the depressed market also means that there are also some great bargains to be had. Consequently when a buyer finds their dream property at a bargain price they tend to want to move heaven and earth in order to secure its purchase. If a buyer’s existing property hasn’t been sold, a bridging loan can provide the funds required to purchase the new property, even if a buyer hasn’t been found yet for the existing property.
There are many properties for sale that are in a poor condition, frequently being in such a poor condition that problems can be experienced by potential buyers who want to fund the purchase using a mortgage facility. These problems are due to the mortgage providers considering the property to be unsuitable security due to its condition. Being in such a poor condition can have a significant effect on the value of the property, because it is only available to cash buyers, limiting the number of potential buyers for the property. It is often advantageous for owners of such properties to carry out improvements in order to make the property more desirable and more importantly suitable security for the mortgage companies. To carry out improvements will obviously require money and this can be raised using a bridging loan which can be repaid once the property has sold.
Similarly people who wish to sell properties that are in good condition, but perhaps in need of modernisation or other improvements, also turn to bridging loans in order to fund the work required. Old properties, that have perhaps been inherited, can have their values significantly increased by adding an en suite bathroom, new kitchen, new bathroom, double glazing or perhaps landscaping the garden. Some simple improvements can significantly increase the desirability of a property, and therefore increase its value.