Investigating Bridging Finance as a Fix for Home Moving Problems
When there is a gap between the selling of their present house and the purchase of a new one, a short-term loan known as bridging finance can assist homeowners.
For those experiencing delays in property chains, this is a common choice that has developed into a £7 billion business in the UK over the past ten years. Though it is generally more suited for property developers and investors than for ordinary homebuyers, it comes with major dangers of excessive fees and repossession should not be repaid.
If you are a household and moving home, we speak with some top bridging lenders and brokers in the field to get their opinions of whether bridging finance is worth employing.
A bridging loan helps to bridge the gap
Dave Beard of price comparison site, Lending Expert, had all of the following to say:
Bridging finance helps you to move quickly by making you a cash buyer
Aiman Maklad of Blue Square Capital had the following to say on this subject:
Savills’ research indicates that UK house prices increased by 10.4% in 2021; however, purchasers frequently have to act quickly to grab a property given the competitive nature of the market. By offering that speed, bridging finance lets purchasers move without being hampered by slow sale of their current house.
Bridge finance carries certain dangers
Although bridging finance helps with property chains, it is not without hazards. With interest rates far higher than with standard mortgages, bridging loans are costly.
The typical bridging loan interest rate, according to MT Finance, can vary from 0.44% to 2% each month, which can fast mount. This can be a major financial load for a normal house owner, especially if the loan is not paid back within the anticipated period. Apart from the high interest rates, one should take into account set-up expenses and departure fees, which might raise the loan’s whole cost. Should the sale of your current house take more time than expected, loan charges could skyrocket and cause financial difficulty.
The danger of not being able to sell your house in time
The likelihood that you might not be able to sell your current house in time to pay back the loan is one of the main concerns connected to bridging finance. Should this occur, you can be subject to fines or, in the worst-case situation, compelled to sell your house for less to pay back the loan. This is the reason bridging loans are regarded as high risk and not advised for everyone.
Property developers and investors, who are more used to handling short-term loans and have the financial means to control the inherent risks, would find bridging finance more suited.
Usually using bridging loans, these people swiftly secure houses, refurbish them, then sell them for a profit. Under such circumstances, the loan’s temporary character fits rather nicely with their investing plan. Higher interest rates make developers more at ease since they hope to repay the expenses when the house is sold for more.
Regular homebuyers should treat bridging finance with great care. The dangers may exceed the rewards unless you are sure your house will sell for the price you want and swiftly.
Research by UK Finance indicates that the typical house in a chain sells in sixteen weeks, which could be more than expected if one were obtaining a bridging loan. Before pledging to this kind of financing, you must so thoroughly evaluate your capacity to pay back the debt.
Ultimately, bridging loans can be a helpful tool for trying to transfer house, especially in a competitive market where property chains might cause delays. Still, the great expenses and hazards involved with these loans make them inappropriate for everyone. Experienced property developers and investors with a clear exit plan and who are comfortable with the financial risks involved would usually be more suited for bridging finance. Most homeowners would be wise to investigate other choices before deciding on a bridging loan.