Bridging loans are more popular than ever with the total estimated demand for bridging loans sitting at over £4 billion annually. More people are making use of this short term financial resource as traditional mortgages from high street lenders are harder to secure and the application process can be long and rigorous. Bridging finance has become a popular way to inject speed and flexibility into property transactions and is now utilised for many different purposes to great effect.
Bridging loan providers underwrite purely on an asset basis and its typical for interest costs for the loan to be added to the opening balance., This means that so long as there is enough equity within the property and there is a clear strategy to repay the loan, bridging loan lenders unlike many of their mortgage lender counterparts do not concern themselves with affordability stress tests or income verification.
We have mentioned already the importance of a borrower having a clear and plausible plan to repay the bridging loan at the end its term, bridging loans are by design a short-term financing solution and as such attract a higher interest rate than that applied to a traditional mortgage – it is certainly not in the interests of borrower nor lender for a client to retain a bridging loan for an extended period.
Once the bridging lender is satisfied that they have ascertained the true value of the asset(s) and have satisfied themselves that a borrower’s exit strategy is viable, there are a multitude of beneficial and popular uses for bridging loans.