Bridging loans have several benefits that a growing number of people are keen to take advantage of, particularly in terms of property transactions. So, just why is bridging finance increasing in popularity in the UK?
Recent years have brought mixed fortunes for the housing market thanks to the economic downturn putting pressure on consumers' ability to repay their mortgage – and to secure a loan for buying a property in the first place.
This has not only resulted in a slump in house purchases and sales, but has also led to the market for rented homes expanding as more people look to lettings as an alternative to going through the difficult process of saving up for a large deposit and securing a mortgage.
Research suggests that landlords are struggling to cope with high demand for their accommodation, putting pressure on them to make their existing properties fit for purpose so they can be let as soon as possible.
However, as a rental valuation needs to take place before the bank can approve finance for renovation projects, landlords are increasingly turning to a bridging loan company to help fill the gap and ensure they can make their portfolio suitable for lettings in a short period of time.
With homeowners finding it more difficult to get buyers for their properties in a relatively short timeframe, bridging loans have also proved useful for some people requiring finance while they wait for money from the transactions in question to enter their bank accounts.
The financial crisis of recent years has meant many banks are being more stringent with mortgage approvals and putting extra checks in place to ensure customers are actually able to afford their repayments and avoid defaulting on their loans.
This means that while a buyer may agree to take on a property, it might be some time before any money can change hands and enable the seller to move into their new home due to the lengthy approval process.
With bridging loans, homeowners can speed up the transaction and get settled in their next property while they wait for the sale proceeds to come through.
This means you can avoid a scenario where you end up living in your 'sold' home for longer than you wish, which can lead to stress and frustration in the long term.
Are bridging loans for you?
Of course, this does not necessarily mean that taking out bridging finance is a good idea for everyone looking for a quick-fix solution to their problems.
The short-term nature of bridging loans, plus the fact there is an element of risk involved if your property sale falls through – if selling up is indeed the reason you need this type of financial help – means consumers should carefully weigh up the pros and cons before making an application.
Nevertheless, some people may find this kind of loan incredibly useful in the current economic climate. If you're considering taking out such a facility, it's a good idea to get bridging loan advice from an expert who can talk you through the process and help you clarify all your options.
Some bridging finance companies are able to tailor your loan to your individual requirements, so it is important to consult the professionals first to see what they can do for you.
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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The Bank of England says that because of the time lag in loans becoming effective the Funding for Lending Scheme won't have a major impact until 2013.
February lending figures up over previous month but subdued year-on-year.
The Clydesdale and Yorkshire Bank has cut the rate on personal loans between £7,500 and £15,000 to 5.1 per cent beating the Tesco Bank deal to go to the top of the best-buys.
Sainsbury's Bank has cut the rate n personal loans for Nectar card holders to just 5.4 per cent for people who borrow over a one to three-year term.
Marks & Spencer has launched a new personal loan for applicants who want to borrow between £7,500 and £15,000 over a 1-5 year period at just 5.5 per cent.
The Derbyshire Building Society has cut the rate on its personal loan between £7,500 and £14,999 to 5.4 per cent matching the deal from Sainsbury's Bank.
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