Two common uses for bridging loans
When asked what are bridging loans used for, most people will say to bridge their finances when they want to buy a new home before they have sold their existing home. Bridging loans are an excellent solution when the purchase of a new property needs to proceed but is unable to do so due to a shortage of funds because the existing property has not yet been sold. A bridging loan would normally be secured on the property that is to be sold and can provide the funds required to complete the purchase of the new property. Once the former home has been sold the bridging loan will be repaid.
There are costs involved in taking out a bridging loan, and they should only be used as a short term method of borrowing. There are many circumstances where a bridging loan can be used, but there maybe a better alternative to bridging finance. That said, quite often funds are raised through alternative options, when a bridging loan would have been the best and also the cheapest option. It is therefore important to speak to specialists and consider all your options.
Another common answer to the question what bridging loans are used for, is to purchase property at auction or some bargain that may have come along. Bridging finance is often popular for buyers at auctions mainly because they can be arranged quickly. Having had a bid accepted at an auction it is normal to pay a 10 per cent deposit there and then and the balance within 28 days. If the buyer fails to complete the purchase in time they will probably lose their 10% deposit.
Bridging loans are quick to arrange so are therefore popular because people do not want to take longer than 28 days to complete and risk losing their deposit. Although there are other methods of raising funds for purchasing property at auctions, problems can arise on some properties at survey due to the condition of the property. Sorting these problems out can take time and increase the risk of not completing within the 28 days. Bridging finance can offer more flexible lending criteria so problems with construction and poor conditioned property shouldn’t cause any delays if they arise.
Using bridging finance to purchase property at auction is also popular with those who want to turn the property around and sell it for a quick profit. They therefore make use of the fact that bridging finance is an excellent method of short term finance.
Every now and again a bargain may come our way. Quite often with a bargain they need to be purchased quickly before they are lost to someone else. Bridging loans can provide one option for raising money quickly to secure the purchase of the bargain, and can be repaid once the bargain has been sold, money has been released from savings or a more suitable long term finance facility has been arranged.