Will Bridging Loans Grow in Demand and Usage in 2019?

By: Boris_Dzhingarov

Bridging loans are often seen as commercial loans to cover a temporary funding shortfall or a delay in funding. They’re also useful for a variety of other situations like a delayed mortgage closing or buying a home at auction too.

The Association of Short-term Lenders shared in a report that UK bridging loans grew by over 20 percent from October 2017 to September 2018. Clearly, property investors, flippers, and redevelopers of older properties are seeing a real benefit with using bridging loans.
Will bridging loans grow in 2019? Let’s consider this now.

How Do Property Investors Use Bridging Loans?

Bridging loans are there to provide short-term financing. They are often used for a loan while waiting for development funds to come through, which allows a developer to move ahead sooner with a property restoration project.  It can also allow for the purchase of properties opportunistically at auction too.

Imagine that you’re selling one property and waiting for the funds to clear. You visit an auction and spot a house that you’re interested in. The problem is that a deposit for the property is 10 percent of the winning bid and there is only four weeks to find the other 90 percent. To get a mortgage in that time, especially on an older property that’s required to clear a property inspection, is next to impossible. In this situation, a bridging loan is an ideal solution.

A website like bridgingloans.co.uk can help locate a suitable lender that will be willing to make such a loan to back the purchase.

Are Property Investors Strictly Buy-to-Let or Opportunistic?

It used to be that UK property investors aimed at the buy-to-let market because it was fairly simple. This left the professional property investors who did it for a living to put their time into the development, restoration, auction purchases, and so on. However, that’s now all changing.

In many property markets, there are too many buy-to-let investors. People have fallen in love with owning rental properties. As a result, the rental yields have come under pressure as property prices have risen. Cash flowing a property, especially one with debt attached to it, is more difficult now.

Extra profits must be found elsewhere to augment returns. For more adventurous private property buyers, they’re seeing fewer bargains in local markets and have increasingly been looking for new opportunities. Because of this, conventional fodder for property companies is now fertile land to plough for investors on the hunt for a bargain to boost their total returns.

Using a Bridging Loan? Know When to Exit

Bridging loans are never supposed to be used as long-term property financing. This isn’t their purpose. That’s what a mortgage is used for. When needing short-term funding for solid properties, plan for the bridging loan you need and where the replacement funding will come from to repay it on time. Doing so avoids paying more than is necessary in finance costs and keeps you on budget too.

As the interest in property investing as a way to diversify away from the stock market continues, investors use bridging loans to cover funding gaps. This way, they can grab that bargain property at auction and know they can secure it before another eager buyer does.

By Boris Dzhingarov

© 2019 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.