The facts about Short term property finance in the UK

In effect, a bridging loan is a kind of mortgage. It is secured on your property, but without the low interest rates usually associated with a loan. You should consider the risks associated with a short term property loan. Remember if you fail to sell your first property there is a chance you'll have to sell your new property just to pay off the lending. Bridging finance almost always requires that you offer some sort of security for the mortgage. You could offer up commercial or private business that you own or other substantial collateral.

Whilst researching short term property finance you will come across the terms closed bridge and open bridge. In principle a closed bridge is where the 'exit route' or 'repayment source' is already arranged typically where agreements have been exchanged but the funds are not going to become attainable in time. On the other hand, an open bridging mortgage means that there is not a confirmed settlement method. As with most things financial, there is a grey area between the two. The biggest things is to make sure you are arranging the right finance for your circumstances.

Being self employed or having an adverse credit history or CCJs need not be a problem. A short term property loan can even enable people who have an adverse credit history to build a track record before applying for a conventional loan.

Who uses A bridging loan

A bridging loan is increasingly used for business development including site aquisition, self-build projects and business conversions. A typical use for bridge mortgage is to cover a situation where a company needs to complete the purchase on a new property before having sold their old one. They would then use the proceeds of the short term property finance to continue making payments on the old property until it is sold.

How Short term property finance Works

A useful feature of a short term property loan is that the client can repay capital at any time, thus reducing the outstanding balance and future monthly instalments. Typically the term for a short term property loan runs from a few days to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to accommodate your needs. In general the interest rate in determined by the perceived risk by the lender, this can be affected by the loan amount, the type of property being used as security and your credit history.

A bridging loan can be used for a variety of purposes such as:

• To safeguard a business purchase if the mortgage is delayed for any reason.
• To raise capital for any purpose, pending a sale or refinance of the security business.
• Provide temporary funding for the purchase of a 'defective' property, pending completion of repairs.
• To fund short-term commercial or residential renovations, particularly if the property is not habitable.
• A short term property loan can be used to purchase properties at auction thereby avoiding the problem of completing the purchase within 28 days. A short term property loan is often completed in days rather than weeks.
• Probably the most common use of a short term property loan would be connected to buying a business, short term property finance gives you an agreed amount to help you begin your journey bridge the gap between selling and buying your business.

Because short term property finance can be based on the Open Market Value of the business it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of a short term property loan to most business investors who are often willing to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the mortgage. Since a bridging loan usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan.

Where to go for A bridging loan

By using a broker you can get your application in front of as many appropriate banks as possible and end up with several who are able to compete for your business. The best way to secure short term property finance at the most favourable rates and terms is to work with a UK Business loan Broker who understands the ins and outs of bridge loan. Bridging finance can either be based on the restricted sale value of a business or the Open Market Value (OMV). The inadequacy is simply down to the preference of an individual bank, a specialist commercial broker will be well aware of the inadequacy and should ensure that this is made clear to the persona applying for a loan.