Short-term property bridging loans can help investors, developers and individuals achieve their goals in a variety of situations, such as acquiring a BTL, flipping a home, buying before selling and finding a land deal that is very good to pass.
But that’s exactly what it is, how it works and how it can You Get it in your hand?
What does the term “short-term asset financing” mean?
For both private and commercial investors, the property market is likely to be significantly rewarded financially. However, purchasing or developing property can be difficult when capital assets are already invested in other assets. This is where property financing comes in and there are different types of property financing.
What are the different types of short-term property loans?
When you do not have the funds, it is difficult to buy land or property, complete renovations, make major improvements or self-build, especially if you have to spend quickly to meet your goals.
As Stephen Clark, From UK Bridging Loan Broker Finbury, Explains: “There are several different solutions and ways to access debt-based, or equity-based, financing. When you talk about them in general, there are really only two available – bridging loans and property development financing. A bridging loan is probably the type of money needed unless you are developing a property.“
Short-term property loans are accessible and come in a variety of shapes and sizes; Here is a breakdown of the most common species to consider:
A short-term loan secured by a residential, commercial or mixed-use property is often referred to as a Property Bridge Loans. The amount of general debt in the UK is usually no more than 10 million, but it can be much higher than 250 250 million. It takes an average of 10 to 20 business days to complete. Loans are usually repaid at once. Although the loan can be taken up to 24 months, most people usually do it within 3 to 12 months. A realistic exit strategy, or a plan of how the borrower will repay the loan, is required for a bridging loan. A sale of a property or refinancing in a traditional mortgage package for a longer period, for example, would be considered an effective exit.
Emergency Bridging Finance – The initial difference with this product is that it can usually be implemented within 3 to 7 working days and its maximum loan size is usually no more than £ 250,000. Again, this is secured on the property, but this time only in the residential home. In addition, the loan is repaid in single installments. The loan can be used for up to one year. Such financing also requires an effective exit strategy.
Bridging loan refinancing – Almost the same product as regular Bridging Finance, but where the borrower has to ‘rebridge’ the loan because they are not yet ready to repay it.
Property development financing – The loan is usually secured against residential, commercial, or mixed-use property, like general bridging finance. However, there are different types of debt-based or equity-based financing, and even for developers there is a combination of both,
The amount of debt is usually up to £ 25 million but again it can be much higher. On average, it takes 2 to 6 weeks to complete. The main difference between the two is that the loan is repaid in a single rupee. The loan can be taken up to 24 months, but most developers take it between 12 and 18 months. Property development finance requires a realistic exit strategy, or a plan for how the borrower will repay the loan, for example, through refinancing or selling the development. When money is equity based, lenders will probably get their return on investment right after the sale of the development.
Development loan refinancing – Almost equivalent to a bridging loan, but usually for large loan amounts, where the borrower has to refinance the development finance facility because they are not ready to exit it. Since the borrower usually wants to sell the development partially or completely, this loan is also known as Development Exit Loan, Sales Period Loan, or Property Marketing Loan.
How Much Money Can I Borrow With A Short Term Property Loan?
In addition to the short-term, these loans allow the borrower to raise funds ranging from a few thousand pounds to a few million pounds.
A lender’s tendency to lend is influenced by a number of factors, the most important of which is security. With debt-based property financing, the maximum loan value is determined by the equity available within a single property or group of properties against which the bridge and property development debt is secured.
Furthermore, the debt-to-value (LTV) ratio of equity available in a property versus its open market value is affected by the type, location and condition of the property. Some lenders will finance up to 80% LTV on a consolidated residential property in a good location, others will lend only 65% LTV on commercial or industrial property, and land without a plan will attract only LTV or about 50%.
Who can apply for such money?
Any individual or company can apply for a short-term bridging loan or development financing. The acceptance criteria for loans are the simplest because money is secured by a property or group of assets. If the loan is not repaid at maturity, the lender can recoup the borrower’s assets and recoup their investment. If you need a short-term property loan right now, a bridging finance broker is a good place to start.
If you are not sure where to look for your bridging loan or property development finance there are many directories available for free to use online. For example, BridgingLoan.Org.Uk – the UK Bridging Loan Brokers and Lenders Association provides contact details for all major bridging experts in the United Kingdom.
Should I use a bridge loan broker or go directly to the lender?
Whether or not you should hire a bridge loan broker is largely determined by your level of experience in accessing appropriate financing. Brokers charge a fee to find the best deal, which should theoretically offset some or all of their fees and you are less likely to be able to match their rates directly with the lender. If you know that you want to deal with a lender and your transaction is not complicated, going directly to that lender will save you the fees that you would otherwise pay to a broker.
Top Five Reasons to Use a Bridging Loan Broker
- Brokers take care to understand the exact situation of the borrower so that they match the requirements with the right lender.
- Brokers have full market access (exclusive lenders, family offices and private investors)
- Brokers know how to package a borrower’s needs in a way that multiple lenders want to lend.
- Brokers reduce lender rates in order to create competition among lenders
- Brokers can help borrowers avoid common problems while searching for money and complete the loan application.
According to Finbury, an expert in arranging short-term property bridging loans, the main reason for using a bridging loan broker is that “brokers aim to fully understand the particular situation and requirements of the borrower so that they match the borrower’s needs with the right lender.”