Property investors and landlords often use bridging loans to aid their purchase of properties, particularly when buying at auction. The main reason for using a bridging loan as opposed to a buy to let or commercial mortgage is for speed, because auction purchases need to be completed quickly, or because the property being purchased may be considered unsuitable security for other lenders. Property that is considered to be unsuitable security would typically be because it is in a poor state of repair or is possibly unfinished.
In these circumstances, or indeed other times when a quick purchase is required or when the property requires some work to make it suitable security for the commercial mortgage providers, a bridging loan can provide a convenient funding solution. Having purchased the property work to renovate, restore, convert, or to simply just finish the property, can begin. Once this work has been completed the property can then either be sold or refinanced in order to replace the short term facility.
When the property is to be refinanced, in order to repay the bridging loan, then there will be more fees incurred by the owner. These would possible be made up of valuation, legal, arrangement and other administrative fees in order to set up the new finance facility. If the owner is planning to keep the property for some time, then this may well be the best option in order to secure the best long term deal. If however the owner intends to just keep the property for the short to medium term then these extra costs can be most unwelcomed as they dig into any potential profit. Some landlords and investors may only plan to hold on to the property for up to a few years in the hope to be able to achieve a more profitable sale by holding out for the right buyer, or waiting in the hope that property prices will strengthen.
A new bridging loan facility has recently been launched that may prove to be attractive to landlords and property investors who are looking to buy property that is in need of some work. Known as a bridge to let facility it is basically a short term loan that can simply be extended into a 2 to 3 year medium term facility. This is an excellent option for customers who are planning to take out a short term loan with the intention of taking out a buy to let or commercial mortgage, for just a year or two, in order to repay the initial loan, whilst they are waiting to perhaps sell the completed property or for some other reason. The main advantage of a bridge to let facility is that the rates are good, especially when compared to typical bridging interest rates. In addition it can also avoid having to take out a buy to let or some other mortgage facility, therefore saving the costs associated with arranging further finance facilities including the legal and valuation fees that are also associated with them.