In this article, we explain the different circumstances where bridging loans might be necessary.
Which? has some useful advice on bridging loans:
https://mortgageadvisers.which.co.uk/other-mortgages/bridging-loans/. If you are considering a bridging loan, it pays to consult a professional adviser, who will often make use of software for financial advisers, to find the best deal.
Keeping a place in a chain
When the purchase of a property is funded out of the proceeds of another property’s sale, but the sale can’t be completed at the same time as, or before, the purchase, you might need bridging finance.
Renovating, converting or restoring properties
Frequently, property is deemed to be unsuitable for a mortgage. This is generally due to poor condition, or because the property lacks a bathroom or kitchen. Bridging finance may be secured against such property. This helps landlords who want to renovate and then sell or rent out properties.
New bridging facilities can be arranged to replace loans that are nearing the end of their term, or have passed it. This may release funds and/or extend the loan term.
Buying an auction property
If you win at auction, a 10 percent deposit is typically paid that day, with the remainder of the money due within 28 days. Bridging loans can be put in place quickly, guaranteeing that sales can complete in time.
When a must-have item comes along
Sometimes, in order to guarantee to secure a total bargain, a purchase needs to be completed fast. A bridging loan may be quickly secured against equity available in the property.
Solving short-term cash-flow problems
Cash-flow problems can occur for various reasons in business. A bank might call in your overdraft facility, customers may pay invoices late, or brand new equipment may be required unexpectedly.
Probate and inheritance tax issues
Sometimes, when you are dealing with probate and inheritance tax issues, funds may be required. Other reasons include having to pay taxes and bills, release charges on property, and pay off beneficiaries.
Buying property below market value
A bridging loan is helpful when you are buying property that is on sale for a price below its market value.
Bridging loans may be used to raise money for financing property developments.