UK’s Cheapest Bridging Rates starting from 0.65% per month
Here at Brightstar we offer a bespoke Bridging Finance package, suitable when your client requires funds quickly and on a short-term basis (i.e. less than 12 months).
What is Bridging Finance?
- Bridging Finance is a short-term loan, secured against property (or land), used to ‘bridge’ the gap, until longer-term finance can be arranged.
When Might Bridging Finance Be Suitable?
There are many ways in which Bridging Finance can assist clients, but the main purposes are as follows;
- Broken Chain – You have found your dream home, but either have either not yet sold your existing property, or perhaps the chain has broken down and you lost your buyer. Rather than waiting until you have resold your existing property and risk losing the new home, a bridging loan can be arranged to ‘bridge’ this gap and enable you to complete on the new purchase, repaying the bridging loan when your property resells.
- Auction Purchase – When purchasing a property at auction, there are usually strict completion deadlines of 28 days, with a 10% deposit being paid on the day of the auction. In most circumstances, it is not possible to obtain conventional mortgage finance in such a short space of time. A bridging loan can be arranged quickly (usually within 7 – 10 working days), to enable you to complete on time. Once the property has been purchased using the bridging loan, a conventional mortgage can then be obtained in order to refinance and repay the bridging loan.
- Retention / Property Needs Work – if a property needs repair work in order to make it habitable (this includes kitchen, bathroom, central heating, electrical works, new windows etc), then a conventional mortgage lender will not lend until the works have been completed (called a retention). However, it is possible to arrange a Bridging Loan on a property in need of repair works. Once the work is complete, the property can either be refinanced to a conventional mortgage or sold, to repay the bridging loan.
- Below Market Value Purchase (Discounted Purchase) – If you have managed to source a property being offered at a discount from it’s Open Market Value (OMV), for example, perhaps the person selling is in financial difficulty and needs to sell to avoid repossession, or perhaps they are just in a hurry to sell. In these circumstances, it is possible to arrange a Bridging Loan that is based on the OMV of the property and not the actual purchase price. This means that the discounted purchase price can reduce the amount of cash deposit required to put in to the deal in order to complete and can be very attractive to investors and developers. The Bridging Loan is usually repaid via a remortgage (after 6 months) or sale of property.
How Much Does Bridging Finance Cost?
- We can arrange Bridging Finance from 0.65% – 1.5% per month (depending on the loan to value and security).
What other costs are involved?
The lender is likely to charge a valuation fee and legal fees upfront. Costs will vary from lender to lender and will depend on the property purchase price or valuation. In addition, most lenders will charge an arrangement fee of somewhere between 1 – 2% of the loan advance. This is usually deducted from the loan advance on completion. There are usually no exit fees or redemption penalties, although a small number of lenders do still charge these. Exit fees are usually charged on development finance and can be based on the Gross Development Value (GDV) or end value of the project.
What are my Payment Options for Bridging Finance?
- Client makes interest only payments, paid monthly in arrears
- Most lenders will consider providing a fully rolled up facility, enabling the client not to have to make payments from their resources each month and hence improving cash flow. Rolled up Interest is paid on redemption of the loan.
- To assist clients who do not wish to make payments from their own resource we will also retain any number of months’ interest and on redemption, any unallocated interest will be refunded.
What are the risks involved with Bridging Finance?
- Bridging Finance is more expensive than conventional mortgage funding and is a short-term funding option. Therefore it is essential to establish a clear exit strategy to ensure the loan can be repaid (either via sale or remortgage) to avoid paying high penalty interest rates and possibly losing the home to repossession if the loan cannot be repaid.
To discuss a New Business Enquiry, please call us on 01277 725166 option 3
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