LEADING UK BROKER FOR
Alternatives to Bridging Loans
If you’re unsure whether bridging loans are suitable for your needs, then you’re not alone. Many of our clients feel a sense of confusion when sourcing short-term financing for that new home or business venture.
LEADING UK
BROKER
FOR BRIDGING
LOANS
SINCE 2004
For many people, bridging loans provide a viable financing solution for short term purposes. They come through quickly, and you can defer the interest rates until you find a long-term solution.
If you’re unsure whether bridging loans are suitable for your needs, then you’re not alone. Many of our clients feel a sense of confusion when sourcing short-term financing for that new home or business venture.
We’ll cover answers to the questions that are probably burning in your mind, including:
- Are Bridging Loans a Good Idea?
- How Much Deposit Do I Need For a Bridging Loan?
- Is There an Alternative to a Bridging Loan?
So, without further ado, here’s everything you need to know about bridge loans and the alternatives.
Are Bridging Loans a Good Idea?
Most people use bridging loans to purchase a property while they’re waiting for another transaction to come through. It could be that you love a house but haven’t yet sold your property, or perhaps you’re using bridging finance as a stop-gap until you secure a mortgage.
Property finance, such as mortgages, can take a long time to come through, and many buyers find they struggle to buy a property and sell one in unison.
The loan works by using the equity of your current property as a secured asset, meaning that when the sale and acquisition of both properties are complete, you’ll be able to arrange repayments with a long-term financing solution.
Is it just for homes?
You can use bridging loans for commercial property and buy to let ventures too. For example, if you want to buy a new business, you can use a bridging loan to provide an initial payment for a building or lot, then pay it off when you secure development financing or sell the property for a profit.
As you can see, a bridge loan is typically the best solution for short term cash in both personal and commercial transactions.
How Much Deposit Do I Need For a Bridging Loan?
In most cases, you’ll need a deposit to get a bridging loan, and the amount you’ll pay depends entirely on loan to value (LTV), which your lender will determine.
The average deposit ranges from 20% to 25%. So, let’s say you want to borrow £100,000 to finance a purchase at auction. You’d need to put forward at least £20,000 to £25,000, but lenders can specify different amounts depending on the loan to value ratio.
Loan to value defines the overall value of the property you’ll own through the bridging loan. For example, if you buy a plot of land to build a house, your lenders will look at the potential increase in value your loan will generate.
The Financial Conduct Authority doesn’t regulate commercial bridging loans, so you’ll probably need to pay a minimum 25% deposit if you purchase a business or buy to let property.
Is There An Alternative to Bridging Loans?
Remortgaging
Probably the most well known financial solution for people looking to release some cash is to remortgage their current property. While this can provide some equity to bridge the gap, you’ll need to go through a property valuation and pay legal fees.
While you could save money on interest rates, you’ll be responsible for your monthly mortgage rates, and your home may be repossessed if you can’t manage to keep up repayments.
Unsecured Lending
There’s nothing wrong with using a credit card, and most adults in the UK have at least one card, but it’s an unsecured form of lending that can result in severe consequences. Those personal loan adverts that dominate your internet browser are also unsecured, and while this cash solution is highly accessible, it doesn’t make it the best option.
The interest rates on credit cards and personal loans can be incredibly high, and there’s little flexibility to pay them off. While bridging loans are designed to be paid off quickly, through another financing solution or the proceeds of a sale, credit card and loan amounts will continue to rise.
Finally, paying your credit card and loan debts isn’t a case of months later but years later.
Second Charge Mortgaging
Mortgage agreements often have stipulations for buyers, so in some cases remortgaging your current property might result in high redemption fees.
A second charge mortgage enables you to access financial support without the high-interest rates of unsecured lending.
Financing Options
You can find specialist financial products for a range of purposes in the UK. From buy to let mortgages, equity release, and property development finance for residential or commercial purposes, you can find the right solution for your needs.
Many of our clients take on a bridging loan to purchase a property while they wait for development finance to come through, so it’s a great solution under the right circumstances.
Specialist brokers can help you decide on the right financing solution by exploring your options and connecting you to lenders.
Which Alternative to Bridging Finance is Right For My Needs?
With the many alternatives to bridging loans available, it’s challenging to know which is right for your needs. While other financing options are the most similar to bridging loans, you need to show lenders that you’re a suitable candidate.
Financing is undoubtedly harder to get, which is why many people turn to unsecured loans. However, the risks that come with this type of loan are significant, and we would urge you to explore another alternative to bridging finance.
Overall, these solutions might provide some benefits. Still, secured loans and bridging finance are both going to protect your finances and give you a viable way to pay off your debts and settle into a structured and affordable payment plan.
Combining a short term finance solution just as bridge loans with long-term financing will give you the quickest payout and a viable exit strategy that lenders will look upon favourably.
Would You Like to Discuss Our Services?
As one of the UK’s premier bridge loan providers, we work with clients to ensure they have the funds and security to purchase another property. Whether it’s for business or residential purposes, our friendly team can discuss the flexible nature of our service and will therefore help you choose the correct terms.
We’re happy to discuss your current financial situation, including assets, equity and tell you more about the LTV calculator we use to determine your deposit and costs.
Our registered office in England is available to take your calls and arrange a free consultation. Any residential bridging loan solution you use through us will be fully authorised and regulated by the FCA.