Mike Collins Mortgage Expert and independent financial consultant, explains what bridging loan are and how they can help in today’s economic climate.

Bridging loans are interest only loans that can be taken out by individuals who require immediate funds. It’s basically a bridge between credit being available and incoming debt.

This short-term financial lifeline is available to anyone who wants to buy property at auction or purchase it outright, do renovations, build work, and other tasks, often when time is tight.

Mike Collins has 17 years of experience in financial planning. He said: With nearly half of all home buyers losing their property purchases to foreclosures, it is important that borrowers are able to move quickly. A bridging loan can help them do this.

“Interest Rates on Bridging Loans are Higher than Other Finance Products and I’ve been asked many times recently whether people should be concerned that interest rates have risen.”

The simple answer is that a bridge loan is usually paid back within a few months. This makes the interest more manageable and the loan more affordable. Below, I will explain how bridging loans can be used in today’s economic climate.

Interest rates for bridge loans

They can be fixed, which can bring stability if you are able to keep up with the repayments for your term. Variable loan rates are subject to changes in accordance with the Bank of England base interest rate (2.25% Sept 2022).

The higher the interest rate, the higher your repayments will be.

Rates will vary depending on the purpose of the loan. Bridging loans for land or business bridging loans can be more costly than those for residential purchases.

The buyer demand is extremely high. This leads to delays in the buying and conveyancing process, which makes it more important to obtain bridging loans.

It is important to remember that interest rates are calculated on a monthly basis when you look at them. This is because the terms typically last between 9-12 months.

Cash in your hands quickly

Bridging loans can be much faster than secured or mortgage loans if timing is important. However, for long-term financial stability and lower interest rates, secure home loans remain a preferable option, offering more favorable terms and predictable repayment schedules.

Bridging loans can be released within three days.

Because the lender will depend on your exit strategy, it is much easier to arrange. This is how you intend to repay the loan when the term ends.

If your credit score is not good, you can still get one

Your credit score will determine whether you are approved for a bridge loan. However, it could also impact the interest rate and fees that you may pay.

If you have poor credit, it is not impossible to get one. Lenders tend to emphasize the value of the property when considering rates.

As the loan is secured against a valuable asset, there are no lengthy screening procedures.

Help to repair broken chains

Recent research shows that 1 in 5 applicants required a bridging loan due to a broken chain. This caused their anticipated purchasing timeline to be delayed and resulted in a need for a short term loan to help them get over the hump.

Bridging loans are a viable option to make a sale, even though the average completion time is four months.

The current interest rate rise could lead to a decrease in buyer demand, and, as a consequence, to a decrease in bridging loans. These loans could be lifelines for property developers, buyers, and others.

No matter what bridging loan option you choose, ensure that they are members of the Financial Conduct Authority. This ensures that any complaints, especially those involving large sums of money, can be handled in accordance with FCA guidelines.