At Brightstar, we recently conducted some research amongst a group of mortgage brokers who worked in estate agencies. We asked how many of them spoke to their estate agent colleagues about bridging lending and its potential uses for their clients.
Only around 40% said that they were proactive in promoting the uses of bridging finance, which means that there are many agents and investors who could open up new opportunities by adding bridging to their toolbox.
Bridging finance is a short-term mortgage secured against property or land that is used to ‘bridge’ the gap until longer-term solutions can be arranged. The key to the success of short-term lending is to ensure that a viable exit strategy is firmly in place, usually the sale of a property or refinancing onto a longer-term product. Bridging can be used for a range of purposes – here are just three that could be useful for you.
1. Catalyst for transactions
Bridging is typically known for chain break situations, as a solution to help people who need to complete on a purchase before their existing property has been sold. A bridging loan can help facilitate the purchase of the new property, with the exit being the sale of the original property. This approach can also be used where a buyer requires a quick completion, either because this has been requested by the vendor, or even to give a buyer a better chance of beating the stamp duty holiday deadline.
Bridging could also be used for people who want to downsize and release equity in their property to allow them to complete the new property purchase prior to the sale of their existing property, and people who are looking to release equity for cash flow purposes on a short-term basis, for example, to pay a tax bill, divorce settlement or for business use.
2. Property Refurbishment
A growing number of property investors are realising that they can generate better returns by buying a run-down property and renovating it to achieve a higher resale price or retaining the property and benefitting from increased rental income.
Refurbishment finance can be arranged on properties on a flexible basis, even if they are in an unmortgageable state, providing the time a buyer needs to carry out the work to increase its value before deciding whether to retain and refinance onto a longer-term solution or sell the property.
3. Development Exit Loans
Many developers are in a position where they are asset rich and cash poor, particularly when they are towards the end of a scheme and marketing the properties for sale.
At this stage, there is the option for developers to buy extra time to help achieve the best sale price on the property, and even release additional equity.
A development exit loan is a type of bridging loan that allows a developer to refinance their completed scheme, often at a lower rate than their development finance facility, and also release equity from the scheme to use towards future projects
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Source: Property Reporter