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Bridging Loans

At Dolphin Loans we use all the top lenders to provide our customers with the best possible bridging loan deals and we do not charge broker fees!

What are bridging loans?

A bridging loan is a short term loan that is usually taken out by individuals or businesses to cover a temporary gap in their finances. This type of loan is usually taken out to provide funds until an asset is sold or refinanced using a more traditional long term facility. This would normally be a property but could also be shares, a business, investment or other valuable asset.

As a short term funding solution bridging loans are useful because they can be put in place quickly and over the short term tend to be cheaper than other options.

Bridging loan uses

Traditionally bridging loans have been used to raise funds in order to buy a new property before an old one is sold. Although still commonly used for this purpose, they can also provide a useful method of finance for a number of other purposes.

There are an ever increasing number of bridging loan lenders, set up to take advantage of attractive rates of returns on capital when compared to leaving funds invested in deposit accounts in the banks where interest rates are at an all time low.

The increasing numbers of lenders are continually looking for ways and reasons to lend their money out on a short term basis.

  • Poor condition and derelict propertyThey will lend against property deemed unsuitable security by other lenders, making bridging a useful option to raise funds for property improvement and restoration.
  • Poor credit historyApplicants who have a poor credit history are accepted by many lenders.
  • No extensive income questions or affordability calculationsSince funds are only required for a short period of time the interest charges can be added into the loan and paid at the end. This means affordability and serviceability are not quite the issue of other lenders. Many plans do not require evidence of income as the lender has no need to be concerned if an applicant can afford to make monthly repayments.
  • SpeedMany bridging lenders have funds ready to go and are keen to get their loans paid out as quickly as possible. This can mean funds paid into a bank account and ready for use within as little as 24 hours. This type of loan is traditionally meant to be quick, and although there are some painfully slow bridging lenders out there, many do move at a reasonable speed.
  • Applicant’s AgeMany lenders do not have an upper age restriction. They will however require a solicitor to be happy that they fully understand the terms and conditions of the loan. Power or Attorney is also acceptable with some lenders, but by no means all.
  • Lending against market value and not the purchase priceAgain this does not apply to all bridging lenders, but there are some who will lend against the open market value of a property. This can be useful for purchases when a property is being purchased below market value and funds can be raised against the value and not the purchase price.

The many specific uses of bridging loans

Due to their flexibility on credit history, property type, speed and general underwriting bridging loans are commonly used for:

  • Maintaining a place in a sale chain
  • Paying urgent tax demands
  • Full filling orders
  • Purchasing a real bargain
  • Funding auction purchases
  • Buying un-mortgageable properties
  • Property restoration and conversion
  • Providing urgent funds
  • Solving inheritance tax or probate issues

However, bridging is only a short term option and this type of loan should be taken out only for a short term and not any more than 12 months. When taking out a loan of this sort you should have in mind how you intend to pay it back at or before the end of the term. Your bridging loan exit route should be a sure thing and if it isn’t make sure that you have a second or third option available.

Facilities up to 36 months are also available, but these should not be confused with pure bridging loans.

Advantages of bridging loans

The advantages of bridging loans are that they can be put in place quickly, have very flexible lending criteria and as a short term finance option can be cheaper than other finance options.

They can also make use of multiple properties as security when arranging one facility. This can be beneficial when buying a new property to renovate before refinancing or selling. By using the property being purchased plus an additional property as security, it could be possible to raise all of the funds required to buy the property, pay stamp duty and also raise the required funds to carry out the building work.

Disadvantages of bridging loans

They are only meant as short term finance facilities and can therefore prove to be expensive if they run over their agreed term. Indeed some lenders will charge extortionate fees, costs and penalties if you go over the term of the loan. They may also repossess the property provided as security, so extreme care should be taken when planning your exit route and also deciding on which lender to use.

Rates and costs

When deciding which bridging loan deal to opt for it is best to look at all the individual costs as well as the interest rates.

Bridging loans will charge a monthly rate of interest plus some or all of the following:

  • arrangement fee
  • administration fee
  • booking fees
  • exit fee
  • redemption fee
  • deeds release fee
  • valuation fee
  • telegraphic transfer fee
  • legal fees
  • default rate of interest
  • default charges
  • rearrangement or renewal fees
  • title indemnity fee

Be careful to check out all of the fees and not just the interest rate!