A bridging loan is a form of short-term finance, where property is used as collateral. They are often used to provide funds for a period of time whilst allowing you to either refinance to longer term debt or sell a property. Bridging finance can be used for the following purposes:

• Purchasing a property quickly - by auction for instance
• Buying uninhabitable property
• Funding property restoration or conversion work
• Repossession prevention
• Buying property under market value

Here are the main advantages and disadvantages of Bridging Finance:

Advantages

• Applications are usually completed within 14 days, ideal for when funds are needed fast.
• It can be used to raise capital where cash flow is tight as there are often no monthly repayments to make, however you must have sufficient assets to repay the loan.
• The bridging market is fiercely competitive, which has brought a drastic reduction in average interest rates. The lowest rates are often as little as 0.47% per month!
• In cases where properties are purchased under value, lending is based on the full value of the property, allowing you to purchase a property without a deposit.
• Bridging loans can be used to purchase properties that would be ineligible for borrowing using other types of borrowing, such as uninhabitable property.

Disadvantages

• Although Bridging loan rates are falling, traditional mortgages are still the most cost-effective option for most property transactions.
• As most loans are short term, if you have problems with repayment, you can face major penalties. Similarly, failure to repay the loan at the end of the term can eventually lead to repossession.

Taking stock, there is no doubt that Bridging loans are a useful tool when raising finance however bring more risk that other forms of financing. As such, New World Finance can help you to carefully consider your options and circumstances and provide impartial advice on a solution.