BRIDGING LOANS and MORTGAGES

You will require a mortgage to finance your home bid unless you are a cash buyer. The first step to securing a mortgage before attending an auction is to speak to a lender and find out what type of mortgage, they can offer you. Here at ams: we can act as an intermediary; we have access to a portfolio of lenders and will find the best lender for your needs.

Bridging loans serve as a short-term financing option and are frequently utilised by property investors and developers to bridge the financial gap between two transactions, such as the sale of one property and the purchase of another. This financing option is ideal for situations where a borrower needs quick access to funds, as bridging loans are easier to obtain than traditional mortgages. Unlike traditional mortgage lenders, bridging loan providers focus more on the collateral value of the property being used as security than the borrower's creditworthiness.

While bridging mortgages offer a more accessible financing option, they typically come with higher interest rates compared to traditional mortgages. They are also designed to be paid off within a shorter timeframe, which usually lasts for several weeks to several months. Overall, bridging loans provide an expedient option for borrowers who need quick access to funds to purchase a property, make a development project mortgageable, or finance a renovation project, but borrowers should ensure they have a clear exit strategy to repay the loan within the specified term.

The two primary types of bridging loans are closed and open. When a borrower has a fixed repayment date in mind, such as the completion of a property sale, they are more likely to obtain a closed bridging loan. In such cases, the borrower has a clear exit strategy, which makes the loan more attractive to lenders, resulting in a higher probability of approval.

Conversely, an open bridging loan is utilised when the borrower lacks a definite exit strategy. For instance, if a borrower wants to buy a property but is waiting for a separate property to sell, they may not know when they will be able to repay the loan. Due to the additional risk posed to lenders in such cases, an open bridging loan may come with higher interest rates to account for this uncertainty.

The duration it takes for a bridging loan application to be approved varies depending on the complexity of the loan application and the lender. However, generally, the process of obtaining a bridging loan approval is faster than that of a traditional mortgage since lenders are more interested in the collateral value of the property.

Generally, borrowers can anticipate a decision on their loan application within several days to a week. Once the loan has been approved, funds can be swiftly disbursed, often within a few weeks.

The timeline for obtaining funds can be influenced by multiple factors, including the lender's processing duration and the extent of documentation required. Normally, borrowers should anticipate the funds becoming available within a few weeks of applying for a bridging loan, although the time frame may differ depending on individual circumstances.

Bridging loans generally have a maximum loan term of 12 to 18 months, although this can differ depending on the lender and specific loan terms. Bridging loans are intended to be short-term funding solutions, and lenders usually anticipate them to be repaid within a reasonably brief time frame. It is critical for borrowers to thoughtfully consider the loan term and have a distinct exit strategy in place to repay the loan.

Borrowers are generally required to offer collateral in the form of a property or other asset to secure a bridging loan. This collateral acts as security for the loan, giving the lender assurance that they will be able to recover their funds in case the borrower defaults. When assessing the loan application, the lender considers the value of the collateral to determine the amount that can be borrowed and the interest rate for the loan.

Indeed, a bridging loan can be a viable option for individuals looking to purchase a property at an auction since auctions often require buyers to complete the purchase within a short timeframe, which can make traditional mortgage financing impractical. Bridging mortgages offer buyers quick access to funds to complete the purchase, which can be repaid once longer-term financing, such as a traditional mortgage, is secured.

Additionally, bridging loans can be used to finance property renovations. Many property investors and developers utilise bridging loans to fund the purchase and renovation of properties, intending to sell the property for a profit once the renovation is complete. The funds from a bridging loan can be used to cover the costs of materials, labour, and other expenses associated with the renovation. However, it is crucial to have a clear renovation plan and exit strategy in place to ensure that the loan can be repaid within the specified term.