The bridging market is growing, and short-term mortgage lending is becoming an increasingly popular solution for homebuyers and property investors alike. There has been much in the press about how bridging could help buyers to beat the stamp duty window and save broken chains, while more property investors are discovering the benefits of buying at auction, carrying out a refurbishment and converting large properties to HMOs and multi-units. However, bridging remains an area that is still frequently misunderstood and there remain myths around this section of the market. So, what are the most common myths, and what is the truth?
Myth: Bridging is expensive
Truth: Over a longer period, bridging is certainly less efficient than term finance. However, a bridging loan can be in place for as little as three months, rates are often under 0.50% a month and it is most commonly used to leverage capital in a way that actually creates wealth. For example, a bridging loan to fund a refurbishment project may have a total cost of £75,000 but might increase the capital value of the property by £150,000 and so the borrower benefits from a net gain. Or bridging could prevent a property transaction from falling through, which could save a homebuyer wasted time and costs. Bridging opens the door to opportunities, and this can often result in clients making, or saving money.
Myth: Bridging is a last resort
Truth: Bridging can certainly be a useful tool when other avenues have failed, but its commonly used by savvy investors and business owners who recognise the benefits of fast access to flexible finance as a means of leveraging capital. Unlike longer term mortgages, the interest on bridging finance is rarely serviced monthly and usually paid upon exit of the loan. This means it can be used to manage cash flow, which makes it an even more useful tool.
Myth: Bridging lending is complicated
Truth: Like any new market, the landscape may seem unfamiliar at first, but the bridging market is growing in size and reputation, with many established lenders setting high standards in both regulated and regulated lending.
The key for any bridging loan is to be clear about the exit strategy. This could be by refinancing onto a longer-term product, the sale of the property, or a possible combination of both.
For brokers who are new to bridging, or want to access additional expertise and lending options, working with a specialist distribution partner can provide peace of mind and make it even easier to deliver bridging solutions to your clients.
Myth: Bridging finance is unregulated
Truth: Some bridging and development loans are exempt from certain aspects of regulation, particularly if the finance is being arranged for a Ltd company. However, private individuals who take bridging finance on their home are protected by full FCA regulation in exactly the same way as arranging a standard mortgage. Even where loan agreements are unregulated, lenders operate to high standards of transparency and fairness.
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