How property developers succeed with bridge loans
£50 million. That figure represents the total value of bridging loans completed each week, according to the April 2015 industry figures.
This increase in the use of bridging loans has been attributed to various reasons. What are they?
Some experts argue it is the result of an improving image for the industry, which has led more people to use a bridging loan for their project.
Others argue it is the bank’s reluctance to lend in the current climate: as the banks tighten their belts the property developers find it harder to finance projects. Therefore the developers look elsewhere.
But there are more factors at work here. Property developers and individuals now use bridging loans for a number of reasons. Let us explain.
A quick look over the frequent uses
The Classic Bridging Loan
In this situation, the loans are used to bridge the gap between selling a property and financing the next one.
Example: When a property buyer wants to finance a new house before selling an existing house.
The Refurbishment Bridging Loan
Some developers invest in run-down properties, bring them up to standard, and then sell them on. But it is hard to secure mortgage offers from high-street institutions such as banks and building societies. So bridging loans are filling that gap.
Example: A borrower gets funds to buy and renovate the property before applying for a standard mortgage.
The Debt Bridging Loan
You need to pay a large bill or debt. Fast.
These loans can be used by people with a portfolio of assets, but have a cash flow problem or delay.
Example: A VAT demand or a builder’s merchant invoice. The borrower can pay the demand or invoice, and later sell an asset to repay the loan.
Development Bridging Loan
This includes the purchase of land, and additional funds to build a house, or houses.
Example: An initial loan to assist the land purchase, followed by further loans, at various stages throughout the build: clearance, building walls, roofing, plumbing, electrics, and more.
Other uses of bridging finance
There are many more uses for bridging loans, as lenders look to say yes to the right deal. One of the most important factors – how will the loan be repaid?
If there is a strong repayment method, or exit strategy, such as a property sale or a remortgage, then it makes lending more likely.
Call our Manchester office today on 08000 44 84 84 for more information.