How Mortgage Bridging Loans Can Save Your Next Property Deal

 

The stress of securing funding for ripe real estate investments in a time constrained environment is a common predicament that requires a calculated solution. Bridging loans offer the flexibility and efficiency needed to buy time and complete transactions in the expeditious manner necessary. A bridging loan is a short-term financing arrangement secured against your property to help “bridge” a timing gap.

Consequently, bridges prove invaluable in situations where urgent cash outlay is vital to make a purchase, refinance quickly, acquire land for a development, or meet an auction deadline. Bridging finance can be obtained promptly, often in a matter of weeks, to aid resolving the time centred quandary you may be in. The tenor of a bridge lies anywhere between three to twenty-four months depending on the asset and can be secured via a first or second charge on the property. In view of the above, this article will outline the various instances in which bridging loans provide a timely and convenient solution to save your next property deal.

BUY-before-you-SELL (“Broken Chain”)

A common issue one encounters when needing to complete the purchase of land or piece of real estate is lacking the funds at present as they await the sale of another property to release the capital required. This creates what is referred to as a “broken chain”, where there exists a disconnect in the timeline of cashflow. A bridging loan fills this gap by providing the funds needed to purchase now, prior to the cash inflow from selling the existing property. Lenders are willing to finance this purchase given a clear exit strategy exists where the borrower will repay the bridge through the sale of their existing property.

Auction Purchases

Pursuant with mapping solutions to time constrained real estate transactions, a bridging loan allows you to complete the purchase you wish at an auction without enduring the lengthy and tedious process of procuring a mortgage. Upon completion of the purchase, a bridging loan leaves room to refinance onto the necessary buy-to-let mortgage or term facility required. Furthermore, a bridge offers the flexibility of retained interest and fees, allowing you to delay cash outflow during the holding period.

Development Exit Period

As a development draws closer to completion, the term of the finance provided to the developer for the project also nears as the lender expects repayment. The developer often relies on the sale of units from their project to repay their development loan, however the timing of such cashflow can be uncertain. This is where an exit bridge saves you from potential default by allowing you to repay the existing lender and provides the extended timeline needed to facilitate selling units in the property.

Portfolio Restructuring

A bridging loan can also prove beneficial when you hold a portfolio of properties that need refinancing, whether it is because you are locked into a handful of fixed rate mortgages, release equity, or need to transfer portfolio ownership. A portfolio bridge can be structured across multiple assets using cross-charges to raise capital, repay the existing debt and allow the time necessary to roll the portfolio on to the required new long-term products.

Refurbishments and Conversions

In situations where your property cannot secure a mortgage before undergoing structural work or renovation, a bridge can help provide the short-term capital necessary to invest in the assets’ restoration. The interest from such a product can be rolled up and principal provided for acquisition or refurbishment be repaid when work is complete by refinancing on to a long-term buy-to-let or commercial term facility.

Ultimately, the key takeaway is that a bridging loan offers an invaluable option in common time-constrained real estate transactions. By serving as a source of short-term liquidity to accommodate your timeline, a bridge can secure purchases of ripe investment opportunities in addition to equipping you with the means necessary to restructure your portfolio or refinance existing debt.

What is a Bridging Loan? How to Use a Bridging Mortgage to Buy a House?

 Introduction

When considering the purchase of a property, it is important to consider the available financing options. A bridging loan is a well-established form of financing that is often used in house purchases. While there are numerous advantages to using a bridging loan, it is vital to understand how they work and when to use them. This article will discuss bridging loans and how they can assist in the purchase of a house.

Bridging Loans Explained

How Do They Work?

A bridging loan is a short-term financial facility that allows borrowers quick access to funds to be used for a specific purpose and to be repaid at a defined event. Bridging loans are often used in real estate to assist borrowers with the purchase of a new property prior to the sale of their current property. Bridging loans are often quicker and easier to secure and allow the borrower immediate access to capital based on a future event. Bridging loans typically have their interest rolled up and last under 24 months. This means at the end of the loan term the borrower pays the full amount of the loan and any accrued interest.

When to Use a Bridging Loan:

Given the high interest rates associated with property bridging loans it is important to know when to use them. Bridging loans are most useful when a borrower requires quick access to capital for a short period of time. Bridging loans are generally used to take advantage of a time-sensitive opportunity, where longer term finance options would take too long. Another common use of bridging loans is to finance the renovation of a property prior to its sale or letting. 

Given that bridging loans often require defined repayment terms, borrowers should ensure they have a clear repayment plan in place before applying for a bridging loan. This repayment may be through the sale of a property or the securing of longer-term finance.  In cases where the repayment date is uncertain, borrowers should opt for an open bridging loan. This form of bridging loan allows the borrower flexibility on the repayment date.

Advantages of a Bridging Loan:

There are various advantages of a bridging loan, especially in the purchase of a house. Firstly, bridging loans offer borrowers a great degree of flexibility, allowing for high LTVs and shorter terms. Secondly, bridging loans can be arranged quickly to allow borrowers fast access to capital. 

Given that bridging loans have a defined exit strategy and are secured against a property, the due diligence process can be expedited. Bridging loans can offer borrowers the ability to repay loans in one lump sum amount, preventing them from having to regularly service interest payments. This may be particularly useful to borrowers with cash flow constraints.

Disadvantages of a Bridging Loan:

Prior to applying for a bridging loan, it is important to understand the potential constraints they are associated with. 

Firstly, given the short term of bridging loans, they are often associated with higher interest rates when compared with traditional mortgage bridging loans. In addition to this, they also have higher fees and structuring costs as a result of their expedited process. 

Secondly, given that the repayment of the loan often relies on the sale of a property, there are many challenges that can arise should the property not sell within the required time frame

Conclusion

In conclusion, bridging loans offer useful solutions to borrowers looking to secure short term finance. Knowing when and how to apply for a bridging loan can be confusing. Therefore, consulting a mortgage broker can assist home buyers in securing the finance that is best for them.

Questions to Ask from Commercial Mortgage Broker in UK

Choosing the Commercial Mortgage Broker in London can seem like a challenging task when you first start looking for one. But you can quickly narrow your search to only the best Best Mortgage Brokers London by knowing what questions to ask, and what answers to listen for.

How long have you been in business?

This is not to discredit Commercial mortgage brokers that have just started up their company. However, experienced mortgage brokers will not only have a wider network of lenders to deal with; they'll also know how to talk and negotiate with those lenders because they will have already built up a relationship with them.

What education or licensing do you have?

All Commercial Mortgage Broker in London need to be licensed to practice, and you need to make sure that you ask if they are. Don't just ask though; verify that they have a license by checking with the London Association of Accredited Mortgage Professionals.

What do you base your recommendations on?

While mortgage advisor London are paid commissions by lenders in exchange for finding the business, they still need to be working for you and trying to get you the best deal. A lot of people are hesitant to ask a Commercial mortgage broker about the commissions they are getting from certain lenders because they think it's too personal a question to ask. And while it is personal, in this case, you need to make sure you pose the question so that you can be sure your broker is really working for you, and not for the lender that's got the highest commissions.

What additional fees will be charged?

Some Commercial mortgage brokers will quote you a really low-interest rate just so they can get you to sign onto a deal. Once you do, they then charge you all kinds of extra fees such as overnight delivery fees, appraisal fees, credit reporting fees, and title insurance fees. You need to make sure that what you're quoted is the amount, or at least near the amount, that you're going to pay.

May I see the lender's letter of commitment?

Whenever a lender offers you a certain rate, they will write a letter of commitment verifying that rate in writing. And your mortgage broker should have no problem letting you see that letter.

What's your area of expertise?

You don't want to work with a mortgage broker who specializes in commercial mortgages if you're looking for a residential home and vice versa. Make sure that the mortgage broker you deal with has extensive experience with the type of mortgage you need.

How often will we be in touch?

Getting a mortgage can sometimes be a lengthy process that involves a lot of going back and forth between you, the lender, and if you're working with one, a mortgage broker. Knowing that your broker will stay in regular contact with you and answer your calls when necessary will go a very long way in simplifying the mortgage process for you.

Do you have references I could contact?

References are a must with just about anybody you're going to hire; and they're especially important with a mortgage broker. Your mortgage broker is going to play a critical role in the type of mortgage you get and how smoothly it goes throughout its entire term and amortization period. And because of that you need to make sure that you're working with someone that's highly qualified and will get the best deal for you.