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Bridging loans can be used for a wide range
of uses and put simply, it is a very convenient
way of raising finance against property within a
short period of time.
Bridging lenders have the ability to move very
quickly and are generally more flexible in terms
of the condition and type of properties they
will lend against. They will also tend to look
more towards the property as opposed to the
borrower and they have the ability to lend
against value instead of purchase price.
Lending against value, as opposed to purchase
price can have significant benefits for
experienced developers/property experts who are
often able to identify a bargain or perhaps
create value by buying an option to purchase at
a lower price and then securing a planning
consent, resulting in an increase in value by
the time they complete the purchase.
Bridging loans are very useful tools when
purchasing a property in very poor condition and
non-income producing, where High Street funds
will probably not be readily available. A good
example is the purchase of a derelict bungalow,
which has the potential for demolition and the
construction of 2 or 3 modern units. As long as
the worst case scenario is covered, in that the
bungalow can be refurbished and sold or
refinanced to repay the bridging loan, the
borrower can use the bridging loan period to
apply for planning. If planning is obtained then
they have the option to stay with the bridging
lender to complete the development funding, or
alternative finance can be arranged through the
High Street or a specialist development
lender.
Using an experienced broker in the above
circumstances can have major advantages, in
ensuring that the costs and right lender balance
is maintained. For example not all bridging
lenders offer development finance, however in a
small scheme with a short development period it
could be more cost effective to stay with the
same lender, even if the interest rate is
higher, due to savings on valuation, legal and
lenders fees.
Bridging loans can come into their own for
auction purchases. Lenders have the ability to
act extremely quickly, so the time constraints
posed at auction are not a problem. Indeed a 14
day completion is becoming quite common and
provides the luxury of knowing that you can bid
safely at auction, knowing that the funds will
be available on time and just as importantly
with the minimum amount of fuss.
About the Author
Anthony Harrison is the Managing Director of
Capital Mortgage Solutions, a specialist
mortgage broker helping people with adverse
credit problems. Visit them at
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