Property developers are often on the lookout for the best finance options when it comes to purchasing properties as saving enough cash to buy one outright is close to impossible for many people.
As you may be aware, there are so many finance options out there, that it can be difficult to decide on the best one to suit your needs. One of the most popular options is to take out a bridging loan. Within this guide, we’re going to give you all the information you need to know about using a bridging loan and whether it will be able to cover your property costs.
· What is a bridging loan?
Bridging loans are a short-term loan that is typically used by homeowners or property buyers who are struggling to find a buyer for the property they’ve put up for sale. It’s a temporary option that helps cover the initial cost of the property until a long-term finance option has been accepted. The good news is that bridging loans is a safe form of debt and if managed correctly, it’s unlikely you’ll fall into further debt. If you want to find out more about the basis of bridging loans, then property bridge loan lenders can help answer any questions you may have.
· Who are bridging loans for?
Bridging loans are ideal for anyone who is looking to purchase a property, but already own a property they’re trying to sell. If the property currently owned costs £250,000 and there is an outstanding mortgage cost of £200,000, then they need to think of another option to get the finance needed to purchase the home of their dreams before their current house sale goes through.
Unfortunately, you can’t get another mortgage until the home you currently own is sold, which could result in difficult situations for homeowners who desperately needed to move location. However, a bridging loan solves that problem by filling that awkward gap between incoming funds from a sale and the outgoing funds of the new property purchase.
It’s also ideal for property developers interested in purchasing a property for renovation but haven’t got the funds to start up the business.
So, the answer is yes, bridging loans will cover your property costs for you, but only for a short period of time until your house sale goes through and you can apply for a new mortgage.
· What about interest rates?
Individuals often take out bridging loans to cover the purchase and renovation of the property; so, the answer is that they will cover the basics for property developers. However, one of the biggest concerns for most lenders is that the interest can be extortionate in comparison to usual loans. On average, it’s calculated at 11% of the amount borrowed and an extra 1% per month added on. With this in mind, having the funds to purchase the property is one aspect to consider, but then there is the added concern of finding the money to pay for the high interest rates.
- Can they be used to cover the costs of any property?
Yes, you can secure a bridging loan for any property. However, you need to declare the type of property you’re looking to buy when you apply; whether it be a house, flat, apartment, or even commercial building for business. Doing so will ensure you get the correct funds to cover the cost of the property, so you don’t fall short.