Surveyors are being extremely cautious
Even where a valuation can be done, surveyors are being very cautious. Whilst they will be producing the usual figures for an open market valuation, 30 day, 90 day and 180 day sale, they may also add a revised figure to allow for the likelihood that prices will fall after the pandemic is over. Some surveyors have even taken to writing, ‘this valuation cannot be relied upon’, on their reports. This makes the report worthless to many bridging lenders, who aren’t prepared to lend on the basis of this type of valuation.
Social distancing causing problems with witnessing legal documents
There are currently problems with getting legal documents witnessed by a solicitor as most are now working from home and not seeing clients face to face.
Staffing shortages are affecting lenders too
Lenders have also been impacted by the requirement for staff to work from home wherever possible and have had to set up systems to allow staff to work remotely.
Staffing numbers have been hit by those needing to self-isolate, which has affected lenders’ abilities to deal with new cases.
Selling your home and buying a new property at the same time can be a little tricky.
It can sometimes take a while to sell your home, leaving you without the sales proceeds to buy your new property.
With a bridging loan, you can avoid the stress of matching up settlement dates, move quickly to buy your new home and give yourself more time to sell your existing property.
A stort-term bridging finance is also known as ‘relocation loan’.
Bridging loans explained: How does it work?
A bridging loan is basically finance that allows you to buy a new property without having to sell your existing property first.
Banks work out the size of the loan by adding the value of your new home to your existing mortgage then subtracting the likely sale price of your existing home.
What you’re left with is your “ongoing balance” or “end debt” which represents the principal of your bridging loan. Banks will assess your ability to make mortgage repayments on this end debt.
Lenders use both properties as security and you’ll have one loan (peak debt) to cover both the existing debt and the new purchase.
Between when your bridging loan is advanced until you sell your existing home, most lenders capitalise interest-only repayments on the peak debt which means that you’ll only have to worry about continuing to make principal and interest (P&I) on your current mortgage, rather than trying to manage repayments on two home loans.
After your property is sold, you simply continue to make normal home loan repayments, plus the compounded bridge loan interest, on the new loan.
Recent statistics show that the demand for bridging loans is continuing to grow, particularly in the property investment market.
Whilst property investors may be shunning commercial properties amidst Brexit uncertainty, the market for residential property investment in the UK is still booming.
Recent figures show that investment in UK residential property rose by a huge 150% in 2018.
Tighter mortgage lending criteria has created a higher demand for rental properties. The high demand has caused a shortage of rental properties, allowing landlords to charge higher rent. These factors combined with a slight decrease in property value have made residential buy-to-let properties a valuable investment.
As more property investors seek opportunities to buy properties in the residential sector, the demand for bridging loans has also increased.
In fact, the latest ‘Bridging Trends’ report found that for the second consecutive quarter the commonest use of bridging finance was to buy investment property.
According to the report, 25% of bridging loans were taken out to fund the purchase of investment property, that’s up from 22% in the first quarter.
Bridging finance is the ideal solution for property investors looking to grow their portfolio as it allows them to move on a purchase quickly whilst the price is low. Without access to a bridging loan it is easy to miss opportunities whilst trying to raise funds.
Here at Richmond Asset Finance we provide flexible commercial bridging loanssuitable for property investment, buy-to-let, and land purchase and development.
For more information about our commercial bridging loans, or to discuss your requirements in more detail, give our team of experts a call on 0113 288 3277 and we’ll be happy to help.
There will be pros and cons to using any form of loan to fund your business and bridging loans are no exception. So to help you decide if a bridging loan is right for your business, here are some of the advantages and disadvantages of bridging loans.
So first let’s look at some advantages…
They are fast
Bridging loans tend to be arranged faster than other types of loan because they can often be used for urgent sources of finance when waiting too long might put the future of a business in jeopardy.
You can use more than one type of security
As long as the security you are using will retain its value. This means you can use assets that you may not be able to use as security for other types of loan.
The cons of taking out a bridging loan are…
You need assets to secure the loan
Unlike other types of loan, a bridging loan can only be provided if there are assets which can be provided as security.
You will be required to pay a lump sum at the end
This means the pressure is on from day one to earn enough money to cover the loan repayment at the end of the agreed term.
If you would like to find out more about the various different types of business loans available. Contact our experts today.