Financing a property purchase can be done in many ways. One of these is often chosen for its turnaround speed and can be quite useful when offers of more ‘normal’ lending are in short supply.
Bridging loans are the usual loan of choice where your finance needs are simply to plug a gap between completion of the purchase and a not-too-distant time when you can arrange other finance. These types of loan are typically for only a 12-month period and carry a high rate of interest. Classically, this can be the most helpful where the overall cost is not an issue, but failing to acquire the target property could have devastating consequences for you.
The big attraction of bridging finance is the quick turnaround that can often happen. Where the property is relatively standard, bridging providers can often be ready to drawdown in 2-4 weeks. This makes them the obvious choice where previous funding has collapsed and time is now of the essence, or where external factors have meant there is no time to arrange a more traditional loan package.
There are of course some drawbacks. If you think bridging finance might be right for you, keep in mind the following points:
- Interest rates and arrangement fees are high – much higher than ‘traditional’ products. You should have an ‘exit’ strategy to repay the loan as early as possible to avoid the interest spiralling out of control.
- What type of property are you borrowing on, and does the title have any nasty surprises? Anything out of the ordinary will likely increase the time it takes to complete the mortgage.
- Many bridging loan providers and their lawyers have standard requirements to fulfil, including in many cases taking a debenture and guarantee to protect their security. Can you afford to give this increased security to them?
Bridging finance is often attractive to successful bidders at auction, because historically it has been a quick way to generate the short-term capital to complete on the auction timeframe (typically four weeks from the date the hammer falls). Issues can arise however where the title to the auctioned property has problems, and inevitably you miss completion, or the bridging provider withdraws their loan offer entirely. For more information on auctions, see our recent article.
Greene & Greene’s experienced Commercial Property team can assist in the acquisition, disposal or leasing of commercial properties. For further advice please contact James Southward – email@example.com or on 01284 717522.