There is nothing worse than a great property investment failing because you didn’t have your finances sorted. Therefore, a bridging loan is sometimes one of the best options, as they are approved and accepted quicker than a standard mortgage.
Bridging loans can be used for pretty much any legitimate purpose, however, here are some of the more popular reasons as to why a property investor might need one:
Chain Break Finance
It can be incredibly annoying when a property chain breaks in the final stages of a transaction. The term ‘chain break finance’ is a term for a bridging loan that will be used to cover your finances while you find a new buyer for your home.
This sort of finance will allow the property sale to continue, whereas the purchase would fail without this.
Purchasing a property at an auction means that you will have to pay a deposit immediately, and complete within 28 days. Plus, as property purchases at an auction may be quite spontaneous, there may not be a mortgage agreement in place just quite yet.
Bridging loans enable auction buyers to access funds in just a few days so that they can purchase the property and take advantage of grabbing a bargain at the auction.
Bridging loans can be used similarly to development finance. Often, mainstream lenders do not lend on properties that aren’t in the best condition, whereas bridging lenders usually consider the future value of the property and make their services readily available.
Alternatively, refurbishment finance could help too.
If someone is after funding for converting a property, or perhaps adding an extension, then a bridging loan could be used for this.
Bridging loans can be used as a serious lifeline for most business men and women, as they can pretty much cover everything from initial business establishment costs to unexpected shortfalls and even urgent tax payments that may be required.
If you think that you fit into one of the categories above, and you’re in need of bridging finance, then get in touch with a reliable independent finance broker, such as Pure Commercial Finance, who will be able to help.
What You Would Need for a Bridging Loan
Most lenders require different things from their bridging loan applicants, although the majority will have a list of the generic information that they require.
Something that the lender will definitely want to know about you, before being able to consider your application for a bridging loan, is your personal details, including:
- Your full name
- Your date of birth
- Current address
- Annual income
- Employment status and details
- Other properties that you currently own
If the bridging loan will be going towards refurbishing a property that you currently own, then you may also be asked for:
- The proposed works or refurbishments to take place
- The cost, or estimated cost, of the works that will take place
- The property value before and after the work has been completed
Alternatively, refurbishment finance could also help. For more information, click here.
You may also be asked by your lender for documentation. Some of these include:
- Documentation that shows your proof of address (utility bills, etc.)
- Driving licence or passport that shows your full name
- An AIP for the follow-on mortgage
- Your property portfolio schedule (only if there are other properties under your name)
- A very detailed schedule of works – costs and timeframes, including the planning permission
- All bank statements from the past 3 months
Loan Request Details
Just like any regular bank, the lender will want to know more about how much you’d like to borrow, including how long you’d like to borrow it for. Regular loans are usually capped at 12 months, although the bridge can be paid earlier, and it does not have to be held for the full term.
The majority of lenders can go up to a maximum LTV of 75% of the gross loan amount, although some brokers, such as Pure Commercial Finance, can find finance that goes up to 100%, if that is something that you’d need. This includes any retained interest for the term of the loan and also any broker fees.
The last thing that they will want would be an exit strategy, and it can be the decider on whether you receive a bridging loan or not. The exit is usually the sale of the property or refinancing on to a long-term deal such as a commercial or residential mortgage.