Bridging loans

One of the oldest forms of borrowing in the United Kingdom is a short term finance option exclusively available to property or home owners called bridging finance. It was initially used for people in transition from one house to another. You may have sold your property, but paperwork on a new home may not have completed, or your part of the chain may have been held up. You would then have to pay a sort of rental fee to the new owners. This was called a bridging loan. It is so called as it it a bridge for you and your finances.

Nowadays, bridging loans can be used for a multitude of purposes for both business, commercial  and residential use. Actual lenders away from well known banks and building societies tend not to ask why you need the advance, more to do with the property that you wish to use, as short term borrowing like this is a secured loan. This is also a highly competitive market in the UK, as minimum borrowing amount starts at £27,001.00 which means that it is above the threshold to be regulated by the government body, the FSA (Financial Standards Agency).

Unlike normal types of borrowing where you have a repayment plan, which includes your minimum monthly repayment plus interest, this works on an interest only basis. For instance, if you borrow £100,000.00 at 1.5% interest, your first monthly payment will £100,000 multiplied by 1.5% which is £1500.00 meaning you still owe the full amount borrowed. This makes it an ideal option for a very short term loan. If you compare to a standard commercial loan at 0.9% interest set up over 60 months, your first monthly repayment would be £1666.66, then your interest accrued would be £885.00. With this you would be locked into repaying over 60 months, paying interest each and every month, where as with bridging, you can give your lender 30 days notice and clear the full amount. The quicker you pay it off, the better off you are fiscally against a normal loan.

Applying is also simple. Due to the competitive nature of this type of financing in the UK, you can simply fill out a quick loan enquiry form, you receive a telephone call from the provider asking to send to proof of ownership of  land or estate, with proof of mortgage payments and how much is outstanding, from which they will ascertain exactly just how much you can borrow. A good rule of thumb is the market value of the property, minus what is outstanding on the mortgage. If you work on about 75% of this value, then you have a ball park figure of what you will qualify for this type of loan.

As the loan value is set outside normal FSA lending amounts, and the bridging loan lender is securing against a house or home, there tends to be no credit checks, so people with a bad credit history are usually excepted.

It is also possible to obtain short term financing of this nature without actually being a property owner. If you are visiting a property auction, as an example, and you see a real bargain available for a quick sale, some lenders will actually advance you the money, before you own the property.