One of the unfortunate consequences of the economic downturn has been an increase in the number of people having their homes repossessed due to the fact they can no longer keep up with their mortgage repayments.
While this is undoubtedly a very distressing development for those who find themselves in this situation, it presents an attractive opportunity for you.
Many homes that are reclaimed by lenders are put up for sale at auctions, meaning you can potentially secure a property below market value.
But what if you do not have the funds to acquire a property at auction? Not every buyer has cash reserves to call on but nevertheless participate and buy at auctions. The way many do this is with bridging finance.
Bridging loans are products you may or may not be familiar with. They are loans designed to address short-term funding needs and can be an attractive avenue for those who need to raise a lot of money quickly.
As with any financial product, you need to fully understand what taking out a bridging loan entails. Interest rates are typically higher than with traditional loans and most lenders will expect their money back within 12 months.
Purchasing properties at auction is one of the most popular uses for bridging loans and if you are keen to take advantage of the opportunities auctions present, they may represent a good way forward for you.
If you have found a property at auction that is perfect for you or you feel has potential to be developed into an attractive place to live, a bridging loan can provide you with the funds to buy it.
A bridging loan company will be happy to overlook a chequered credit history, your income or debts you have provided you have some form of collateral against which the loan can be secured.
This takes the form of a property in most cases and if you own your own home, you can use it as security. In addition, you can use the home you are keen to bid for as collateral as well.
That way you can obtain the money you need, purchase the property in question and carry out any work you feel needs to be done.
Once you have renovated the house, the next task is to sell it. In the current economic climate, that may prove difficult, so you need to take this into consideration when making a decision.
Not everyone who uses bridging loans to buy properties at auctions is an experienced developer. Some are first-time developers, speculators or those who have simply identified an opportunity that is too good to pass up.
So if you are a first-time property developer, a bridging loan can give you the platform to grow your new venture and generate tidy profits.
Bridging finance is not for everyone, however. It is essential that you have a credible exit strategy otherwise bridging loans can prove to be very expensive.
It may benefit you to seek advice on bridging loans before you take one out. They will be able to explain the pros and cons of these products and advise you as to whether there are better options on the table.
Property auctions offer you some great opportunities and it would be a shame to miss out. With bridging finance, you do not have to.
Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.
Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.
You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.
Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.
Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.
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