Tag: Bridging Loans Cons

Considering a bridging loan?

3rd October 2020 / admin / Comments Off

If you are considering applying for a bridging funding, here are some helpful tips:

Compare products from different providers and be certain of the total cost of the loan, rather than just the interest rate. It’s tempting to go for the lowest interest rate, but lenders may charge large exit fees, fund management fees and other hidden costs. Always ask for a breakdown of the total cost before proceeding as this makes it much easier to evaluate different providers. Richmond Asset Finance are completely transparent and will always advise you.
When you are looking for a provider, make sure that the lender knows your timescales and check that they can deliver on time – don’t be afraid to ask questions and don’t waste your time with a provider which won’t be able to deliver.
The amount of money that you can borrow as a bridging loan can vary widely between applicants and is dependent upon several factors. These include the type of property being purchased/renovated/converted; the value of the property; the loan term and interest rate offered by the lender; and your security and proposed exit strategy.
You will need to inform your lender about the property, as it is this that is used to secure the loan (the sale of which is your exit strategy for the loan repayment); having an exit strategy in place is crucial to avoid running into difficulty.
The repayment terms can often be amended to suit you, however, you are usually required to pay back the loan within a year. The application process is typically far simpler than for other types of borrowing and applications can complete very quickly, usually in five to 14 days.

How has the Coronavirus affected bridging finance?

12th June 2020 / admin / Comments Off

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.

Bridging Loans when selling a house – what are the pros and cons?

28th May 2020 / admin / Comments Off

Pros

You can buy your new property right away: You don’t have to wait to get a loan.
It gives you time to get a better price on your property: You can avoid the stress of having to sell your property quickly. By taking the time, you may be able to get a better price for your property.
Interest-only repayments which are capitalised on your peak debt: Your bridging loan repayments are usually ‘frozen’ during the bridging term until you sell your existing home. You’ll only have to keep paying your current mortgage and not have to worry about managing two home loans.
Banks charge standard interest rates: In the past, banks charged a higher interest rate for bridging loans but now there are some lenders that charge standard variable interest rates.
The same fees and charges as a standard home loan: Application fees are the same and you don’t have to worry about break costs or discharge fees for paying the loan off quickly. Keep in mind that most lenders won’t generally approve a bridging loan if you’re likely to sell the property in less than 3 months.
You can make unlimited P&I repayments: To reduce your interest bill, you can actually choose to make as many repayments on the bridging loan until you sell your property.
Avoid the costs of renting and moving twice: Sometimes renting and having to pay for the costs of moving twice may be a better option than getting a bridging loan. It’s important to speak to a qualified mortgage broker so they can help you do the sums to find out which option is better for your situation.

Cons

Interest is compounded monthly: Although the interest is capitalised on top of the peak debt, the longer it takes to sell your property, the more your loan will accrue interest. Interest is compounded on a monthly basis.
You need to pay for two valuations: This will be a valuation of both your existing property and the new purchase.
Higher interest rate if you don’t sell the property in time: If you don’t sell your existing home within the bridging period, a lot of lenders will charge a higher interest rate. Many will also require you to start making principal and interest repayments on the peak debt in order to service both loans. This can cause financial stress.
No redraw facility: If you choose to make repayments during the bridging term but need to redraw for any reason, you won’t be able to do so.
Normal early termination fees will apply if switching lenders: If your current lender doesn’t offer a bridging loan product, you’ll have to go with another lender that will likely insist on taking on the entire debt (your existing mortgage plus the bridging loan). Because you’re switching lenders, you may be liable for early termination fees and break costs particularly if you’re switching during a fixed interest period.

Bridging Loans: Explained

14th May 2020 / admin / Comments Off

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.

Will Coronavirus affect my loan?

8th April 2020 / admin / Comments Off

Loan and credit card payments to be frozen for three months in UK.

The financial regulator has announced plans to freeze loan and credit card payments for up to three months as part of emergency measures for consumers impacted by the coronavirus outbreak. They have also announced plans to help businesses that are struggling in the current climate.

The new measures which could come into force by 9th April is aimed at consumers and renters who are not benefiting from existing relief measures that have targeted homeowners – with mortgage payment holidays – or business owners.

The FCA has advised that banks and credit card providers will have to ensure that consumer credit ratings are unaffected by any of the measures.

If you are looking for a loan or bridging finance for your business in the agricultural sector. Feel free to give us a call or email us today and we will be happy to help!

Four times a bridging loan could help your business grow

6th June 2019 / admin / Comments Off

Bridging loans offer a quick and simple way of raising finance to take advantage of time critical business opportunities.

Whether you’re a new start-up or a well-established business, finding a large sum of money for a new investment at very short notice can be difficult and risky.

However, regularly allowing opportunities to pass you by can be just as damaging, making it difficult to keep up with competitors and preventing growth.

This is where bridging loans can help.

A bridging loan is a short-term funding solution that bridges a gap between a debt becoming due and credit becoming available.

Here are four times when a bridging loan could help your business to grow.

New equipment or machinery– A bridging loan can be used to purchase new equipment or machinery to increase the efficiency, output, or cost-effectiveness of your business’ production process.

Investment opportunities– Profitable investment opportunities don’t come around every day, but when they do you want to be able to snap them up. From new business partnerships to new stock, investing in fresh opportunities is what keeps your business current, competitive and profitable.

Buying property or land– Bridging loans are most commonly used for purchasing property or land and developing it. When buying property, time is of the essence, and applying for a mortgage can be a lengthy process. Bridging loans are ideal for raising funds very quickly to bridge the gap until the mortgage comes in.

Start-up costs – If you’ve identified an opportunity for a new business venture then you’ll want to act quickly to capitalise. A bridging loan can provide you with the funds you need to get your new business off the ground or market your idea.

For more information about commercial bridging loansor to discuss applying for one, get in touch with our team here at Richmond Asset Finance by giving us a call on 0113 288 3277.

Bridging Loans The Pros and Cons

4th October 2018 / admin / Comments Off

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.