More savvy property investors than ever are starting to realise the attraction of bridging loans to expand their portfolios and make big returns, fast. It’s about identifying the right property for sale, getting the bridging finance in place with a trusted firm and then refurbishing the house or flat to a high standard and either remortgaging or selling it at a far higher price, making a substantial return in the process.
For the causal property investor and the even for more seasoned and full-time, professionals in the property sector, bridging loans are one of a range of financing options available. They’re especially popular in cases where the investor has lots of assets but perhaps not so much in the way of cash.
Big Growth in the Bridging Loans Sector
These types of fast loans have become incredibly popular in recent times, with the market for bridging finance growing by 15% last year and now worth some £4 billion. This is according to the Association of Short Term Lenders, a British organisation representing secured-loan and bridging companies that typically lend from between six months and a year.
The association says its members are overwhelmingly positive about the UK market for bridging loans and they are growing increasingly confident about the general British economy. In research carried out last year, it said only half its members were happy with the state of the economy in June 2019 — but just before the general election last December, which returned Prime Minister Boris Johnson to office, satisfaction among members leapt to 75%.
The research also found almost three-quarters of bridging-loan firms said they believed their businesses would grow in the first half of 2020 at least — a figure higher than just over half of the members who had previously expressed such a sentiment. One of the main hurdles to expansion in the bridging finance sector was the UK’s “slow-moving” property market, the majority of those who took part in the research said.
Association chief Benson Hersch said members were upbeat about their prospects in the bridging loan market in the coming year.
“Overall, our members are very positive about prospects for the UK, their own businesses and the bridging sector as a whole. Competition is expected to increase slightly in the next six months, but this seems to hold little concern for our members, and the downward slope in positivity has been reversed.”
How Much Are Bridging Loans Usually Worth?
Bridging financing is available to individuals as well as companies. While it’s not limited to the property sector and the short-term funding can be used for practically anything, it’s mostly used when buying and refurbishing a property, due to the large sums of money required. Some providers will carry out extensive credit and background checks, including going through an applicant’s financial past. In contrast, others don’t require such details at all and will solely base their decision on the case before them and how solid the plan is.
Typically, you can expect to borrow anywhere from £100,000 up to £2 million, with the funds released in a matter of days. As they’re short-term loans of a few months or up to a year, bridging finance has higher interest rates compared to, say, a traditional mortgage and they may have rates per month — for instance, 0.48% a month would equate to 5.76% APR.
But with a solid plan in place, and proof of an exit strategy that many bridging finance providers require, using bridging loans to refurbish a property and get it on the market and sold could result in a big profit windfall.
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