THE ‘Short Term Lending’ market is flourishing. Specifically geared at speedily arranged loans, normally with a monthly rate of interest and pre-agreed with an ‘exit’ route, the term ‘Bridging Finance’ is quickly becoming a household name.
With many lenders in the market, offering loans up to 75 per cent of the property value (sometimes higher with additional security offered) these types of loan are calculated and charged on a daily/monthly basis, with some even offering to roll up the interest (no committed monthly payment). Interest rates start from 0.75 per cent per month and normally are arranged over a period of between one to 18 months.
Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee. However, for the right scenario, these loans provide a superb funding line.
Ideal scenarios for Bridging Finance include – 1) Chain breaking or not sold your property yet When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.
2) Refurbishment – allows you to buy and refurbish property quickly A loan to support with the purchase of a property and then undertake the refurbishment before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold. 3) Purchasing properties at auction Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet.
A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must. 4) Funding under value purchases A loan based on the actual value of a property and not the purchase price.
Thus, when purchasing a property, under value, you may have the ability to borrow up to 90%of the cost of a property (subject to valuation) and then re-finance the transaction using a traditional lender later on. These are just some examples, there are many others.
However, where there are positives, there can be negatives! Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is usually six months. So please ensure this is factored in to any purchase, budget calculations, etc before committing to any Short Term Funding/Bridging Finance.
For more information, or to discuss a specific scenario, please contact AToM.
Dale Jannels - AToM director