What you need to know about a bridging loan

UK Home Improvement

What You Need To Know About A Bridging Loan

You can make tidy profits by investing in a house that needs a little repair and renovation and selling it later, provided you follow the right plan. However, the problem is that many people lack the required capital or motivation to renovate an abandoned real estate; a majority of investors prefer buying a turn-key or ‘move-in ready’ home that is ready for occupancy. Nonetheless, there is no denying the amount of profits to be realized from house renovation projects.

Often, the most financially-promising properties require huge resource injection to improve their physical condition and appearance when readying them for the market. Some of the major but common types of housing repair likely to attract high costs include roofing repair, rewiring and revamping the heating systems. Whatever you do, you must carefully control your bills to ensure you remain within your budget.

If you are looking for an appropriate source of financing for a house renovation, please consider a bridging loan which can be very helpful.  

What Is The Difference Between A Bridging Loan And A Standard Loan?

A bridging loan allows the borrower access to quick financing to meet their short-term needs. There are less bureaucracies and formalities securing a bridging loan compared to the standard loan type like a mortgage; for this reason, bridging loans tend to have higher interest rates. Bridging loans have a shorter repayment duration compared to standard loans; you will have fewer months to repay your bridging loan.

Property developers and owners can swiftly and easily access money through bridging loans to finance housing renovations. This is primarily one of the reasons why bridging loans have become a popular and attractive financing option for renovation projects with strict timelines. To achieve success, the value of the renovated house must be above the cost of repair and interest on the loan. Additionally, the property developer expects to lock in a profit after selling the upgraded house.

Why Is A Bridging Loan Ideal For Property Renovation?

Most high-street credit providers are unwilling to extend renovation mortgages to property developers or owners doing minor repair works on abandoned living spaces and buildings. Usually, limits for these mortgages are between 80-95% of the property’s open market value. However, mortgage funds can take considerable time before they are released to the property developer/borrower. Additionally, the lender is likely to escrow a portion of the loan funds until the necessary renovation works are complete.  

To most traditional lenders, the financing of huge renovation properties to ameliorate their inhabitable conditions is a high-risk venture. This is one of the main reasons why developers struggle or fail to land a traditional financier to back their property renovations. Also, if a developer manages to secure a loan from a high-street lender, the bank releases the funds as construction works continue according to the schedule.

It is much easier to secure bridging loans considering the documentation process and bureaucracies are minimal. At the same time, the lender is willing to offer a higher Loan-To-Value (L.T.V), allowing property developers to quickly get the whole amount of loan funds they need and to be repaid over 4 to 12 months. Easy access to adequate financing is the best way to ensure the property renovation is completed as per the project’s objectives.

How Much Money Can I Get Through A Bridging Loan?

You will be forgiven for thinking you get a lower amount of money through a bridging loan to make up for the fact that it is easy to secure this type of loan. Nothing can be further from the truth; for instance, we are willing to advance loans from £100k to £2m. That is not all, usually, we release funds into the borrower’s account a week after the loan request is approved.

The whole process for issuance of bridging loans is streamlined with the everyday property renovation business in mind. There is very little red tape during the loan application process compared to the conventional type of mortgage. At the same time, the loan processing duration for bridging loans is considerably shorter. 

Additionally, at Apex Bridging, we do not require a credit check for our clients, and we evaluate each case on its own.

What To Consider Before Applying For A Bridging Loan

Before taking the bridging loan, it is best to plan how you will repay the loan because it has a relatively short repayment duration. Luckily, most lenders are willing to customize a bridging loan’s repayment schedule according to your income projection. However, you must clear the balance within 4 to 12 months. Therefore, ensure you completely evaluate your finances to determine if and when you can realistically retire the loan.

Also note, residential bridging loans have comparatively higher interest rates because short-term loans are intrinsically high-risk instruments compared to high-street debts. You will need to know your expected income upon the sale of the renovated house to ensure the costs, including financing costs, do not wipe away your profits.


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