Bridging finance was an undeveloped sector in the UK not too long ago, offering little appeal for the average borrower.
Today, far more people than ever before from all types of backgrounds are using bridging loans for a long list of practical purposes. The more challenging it becomes to secure cost-effective funding on the High Street, the greater the appeal of independent specialist lenders.
The temporary stamp duty holiday in particular propelled bridging finance into the spotlight. Faced with a time-limited opportunity to make major savings on home purchases, many sought alternative options to complicated home loans.
Often accessible within a matter of days, bridging loans are an ideal option when time is a factor.
The other factors contributing to the growing popularity of bridging finance in the UK are:
A DIY Obsessed Nation
Something that has fuelled the expansion of the bridging market over recent years is the UK’s growing obsession with DIY property improvements. Particularly before putting a property on the market, homeowners are setting their sights on major renovations to ensure they sell for the best possible price.
This is a typical use of bridging finance, with the loan subsequently being repaid when the sale is closed. Ranging from heavy structural changes to light refurbishments, short-term loans are becoming increasingly popular among homeowners planning to sell their homes.
Established Landlords
Established landlords are likewise demonstrating heightened interest in affordable short-term borrowing. Purchasing properties at auction below their market value is a popular application for bridging finance, as is the use of bridging loans to renovate properties before renting them out.
Professional landlords also routinely use bridging loans for ‘flipping’ homes and commercial properties. Fixer-upper homes or business premises are purchased at low prices and bridging finance is used to fund the subsequent renovations and the loan is repaid when the completed property is sold.
Fast-access finance like bridging loans can also prove invaluable for covering the costs of urgent repairs or maintaining adequate cash flow in temporary times of crisis.
Convenience and Efficiency
Irrespective of planned purchases or investments, the primary appeal of bridging finance is the same for most borrowers. The speed and efficiency with which capital can be accessed by way of a bridging loan is an attractive advantage.
Typical underwriting processes for conventional products on the High Street can mean weeks or months of waiting. In time-critical situations where this simply is not an option, bridging finance can offer the borrower a welcome lifeline.
Most established bridging specialists are willing to issue loans against properties that would not be considered eligible by any major bank. For example, a dilapidated and currently uninhabitable commercial building, where a bridging loan could be used to perform extensive renovations and sell on the premises for a major profit.
Lastly, bridging finance bucks the trend of short-term loans historically being notoriously expensive. Bridging loans are designed to be repaid within a short period of time, typically six to 18 months. Interest is charged on a monthly basis, meaning loans that are repaid promptly can be highly cost-effective.
Monthly interest rates often sit around 0.5% or less, which can more affordable than any comparable High Street loan.
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