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    Bridging Loans

    Bridging loans are a short-term financing option for those wanting to purchase something while waiting for the funds to become available. This is commonly used for property sales. A borrower would use a bridging loan to ‘bridge the gap’ between purchasing a property and repaying the loan from selling an existing property.

    They can be useful for securing below-marketing value properties and guaranteeing a quick sale. In the buy-to-let world, an investor can use these loans to renovate the property and repay the loan through rental income. Other uses can be to renovate and refinance a property that did not previously qualify for a mortgage, and being a perfect middle-ground between cash buying and a traditional mortgage.

    Details of the process and costs can be found here.

    Bridging Loan Rates UK

    Bridging loans are often seen as expensive, and people avoid them for such. This is partly due to their interest rates. Bridging loan rates in the UK can reach up to 1%. While this may seem a small percentage compared to current traditional mortgage rates, the quick and short-term nature of UK bridging loans makes their interest rates higher in cost.

    There are three ways that UK bridging loans can charge their interest rates:

    • Monthly: The borrower pays interest off each month while the loan amount remains the same.
    • Rolled-up/Deferred Interest: This interest is an option for those who do not want monthly payments, so it is instead paid at the end of the loan and added to the final amount.
    • Retained Interest: The total interest is calculated at the beginning of the loan at an agreed rate, and then added to the final bridging loan amount.

    Bridging loans remain flexible and are a beneficial option for quick financings. It is the bridging loan interest rates that put people off. However, there are ways to make rates lower.

    Ways to Lower Bridging Loan Rates in the UK

    • Consider a larger deposit. Bridging loan deposits are 25% of the property (or asset) value. However, deposits of 40-50% are greatly impressive to lenders, as they like a high LTV value due to the lending risk.
    • Have a strong exit strategy. This is a detailed plan of how the loan will be repaid, including the high-value assets to cover it – a property sale, for example. A clear exit strategy is more enticing to UK lenders as it lowers the risk and, consequently, can lower bridging loan interest rates. An additional asset for more security can enhance your profile and chances, too!
    • Avoid extending your term. While a 12-month term is still short-term, a term of 6-9 months can often lower the rate.
    • Having a strong income and credit history not only aids your chances of acceptance but can lower interest rates in UK bridging loans.
    • Use a lower-risk property. Having properties for commercial use and even land as your collateral is a higher risk to lenders. Instead, use residential properties. This is great news for property investors and landlords who want to grow their investment portfolios!
    • Research and get multiple quotes, and even use an experienced agency that can source better rates unknown to the public.

    Research or seeking professional guidance is certainly key. Bridging loans, or any loan, depends on an individual’s circumstances. CityRise does not offer financial advice, but we work with expert partners who can. Do not let uncertainty halt your property investment journey. Schedule a call with one of our property consultants to discuss your options!

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