Question…………..Who are we talking about?
It’s feared, it’s scary, it’s got a frightening reputation and it’s avoided at all costs….
………….no, not Freddy Kruger, a bridge loan!
With people wildly exclaiming about jaw-dropping interest rates, eye-watering arrangement fees, and extortionate exit fees it’s no wonder bridging has a scary reputation in the marketplace. But is this actually the case? If bridging was quite so scary then why would it be a product so widely offered?
In a nutshell. Bridging is a fantastic product……if you know how to use it.
Does it deserve its reputation?
No, no and even more no’s! Speak to a savvy property investor or property developer and ask if they use bridging, more often than not they will. Why? Because it’s a tool in their toolbox. It can help them move quickly and snap up a property before their competitors can even get through to their mortgage company on the phone. They can buy distressed properties for cheap, do them up and sell on for a high profit – properties that mortgage lenders would not lend against. Simply put, bridging is a way to give yourself the perks of a cash buyer.
However, bridging users need to stay savvy and ensure they have a reliable exit plan to redeem the loan. The shorter the term they need bridging for, the cheaper. If a bridge user is unable to redeem their loan in 12 months, then cue expensive renewal fees and the strain of the monthly repayments adding up.
So, get to the nitty-gritty, what are the pros and cons of taking a bridge? Here’s our top five!
In at 5…Its flexible, you can redeem the facility whenever you want
In at 4…You can use it to capital raise against an existing property to release cash
In at 3…You can lend over 100% LTV if additional sufficient security is available
In at 2…Lenders will often allow a bridge to purchase un-mortgageable, distressed properties
Top of the charts at 1…. it’s a quick facility, most lenders can usually make funds available within 1-2 weeks, some lenders even boast they can lend within as little as 48 hours!
In at 5…The exit plan needs to be reliable, being stuck in a bridge can be costly
In at 4…Typically solicitors still need to be involved, meaning you pay yours and the lenders legal fees
In at 3…There are so many lenders in the market all vying for the business, it can be hard to Identify the reputable and best priced
In at 2…The 6 month mortgage rule can cause a problem for a buyer if a developer uses a bridge to buy and flip within 6 months
Top of the charts at 1….The price, of course! Rates can be from as little as 0.58% per month, but they can also be as high as 2% per month, add to that an arrangement and exit fee, it can be costly unless you factor in the costs of your acquisition.
So, yes. There are costs involved, a monthly interest fee may put some off – but a bridge has its place in the market, it is a product that can make the difference between somebody taking advantage of a great property acquisition, or missing out.