The housing market in the United Kingdom has been on the decline for the past few years and this trend is expected to continue into the future. With this economic forecast in mind, it should not be a surprise that people are now more interested in renting property than they are in buying property.
Because of this, the demand for buy to let properties from landlords has increased and the consumer demand for rental spaces is on the rise as well. With the buy to let industry on the cusp of booming throughout the United Kingdom, it is understandable why landlords are looking to buy more properties more quickly and why they are using bridging finance to increase their ownership portfolio.
What Are Bridging Loans?
Bridging loans are a form of short term financial loans that are generally expected to be repaid within one year of the funds being released. These types of loans are secured using owned property and other assets and are most commonly used by individuals who are in transition or who are looking to purchase property quickly without having to wait for their application to be approved.
Bridging loans have become increasing popular in the buy to let industry – landlords use this type of funding to quickly purchase new properties in order to build their portfolio while they collect revenue on properties they already own. Also, this funding is useful for those landlords who wish to purchase property at auction.
How Bridging Loans are Beneficial to Landlords
Bridging loans are unique in that they are easy to apply and qualify for and the release of funds generally happens very quickly – once an application for funding is received, it is usually processed and funds are released within seven business days.
Because of this, many landlords use bridging finance to not only quickly purchase desirable property but also secure great deals on property that has been put up for auction or properties that are in repossession. Due to the United Kingdom’s current housing market, landlords are always on the lookout for new, profitable properties and bridging loans give them the confidence to be able to purchase these properties on the spot.
Why Choose Bridging Loans Instead of Traditional Buy to Let Mortgages?
When purchasing a property quickly or at auction, there will generally need to be some type of development performed in order to bring the property to a liveable level for either sale or rent. Properties that need to be converted or refurbished will not qualify for a traditional buy to let mortgage, making a bridging loan an attractive alternative to get the necessary construction and updates completed.
Bridging finance also offers an opportunity for flexibility with interest payments – often lenders will allow the applicant to roll interest over into their final payment which is usually paid when the property is sold or begins to make profit through renters.
It is important to note, however, that bridging loans are not a long term financial solution – these types of loans carry high interest rates, which can make them very expensive, and will often need to be repaid within one year of receiving the funds.
Bridging loans are ideal for quick purchases and property development but, when possible, traditional buy to let mortgages are still the accepted form of financial assistance for those seeking to build their property portfolio. Bridging loans also require the applicant to provide the lender with some kind of secure exit strategy or way they will repay the loan.
The strength of this strategy will also be a determining factor on how high the bridging loan’s rate is. Always remember to research different lenders and options to make sure you receive the best possible deal.