Reim Capital

Why investors should consider a bridging loan

According to the Association of Short Term Lenders, the market for bridging finance in the UK shows no sign of slowing down, with lending reaching £4.5bn in 2019, an increase of 19.7% compared to 2018.

Completions in Q4 2019 reached just over £1bn, up by 13.7% on Q3, while average LTVs continued to remain below 60%. 

Bridging is rapidly becoming the first choice for many property investors, underserved by the high street banks, as it’s one of the fastest property secured loans available. Many investors use it as a stop gap when they need money quickly. With typical terms of six to 18 months, bridging facilities are generally available for up to 75% LTV.  However, they do come with variable rates and application, administration, broker and exit fees, so it is worth shopping around and checking the small print.

Bridging is a great solution when investors are looking to raise finance to consolidate borrowing into one place, until a sale is achieved; grow and diversify a buy-to-let portfolio; use bridging finance to leverage capital; or purchase a property at auction.

A bridging loan can be processed in two to six weeks, versus a traditional buy-to-let mortgage which will take 10 to 12 weeks, and investors can raise capital on existing assets. 

For example, they may want to take a second loan against an equity rich property to acquire another property.  

If you are considering applying for a bridging funding, here are some helpful tips:

  • Compare products from different providers and be certain of the total cost of the loan, rather than just the interest rate. It’s tempting to go for the lowest interest rate, but lenders may charge large exit fees, fund management fees and other hidden costs. Always ask for a breakdown of the total cost before proceeding as this makes it much easier to evaluate different providers. Reim Capital provides investors with a fully transparent list of all the fees, costs and charges, so there are no surprises 
  • When you are looking for a provider, make sure that the lender knows your timescales and check that they can deliver on time – don't be afraid to ask questions and don't waste your time with a provider which won't be able to deliver
  • The amount of money that you can borrow as a bridging loan can vary widely between applicants and is dependent upon several factors. These include the type of property being purchased/renovated/converted; the value of the property; the loan term and interest rate offered by the lender; and your security and proposed exit strategy
  • You will need to inform your lender about the property, as it is this that is used to secure the loan (the sale of which is your exit strategy for the loan repayment); having an exit strategy in place is crucial to avoid running into difficulty
  • The repayment terms can often be amended to suit you, however, you are usually required to pay back the loan within a year. The application process is typically far simpler than for other types of borrowing and applications can complete very quickly, usually in five to 14 days

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