Most people looking to purchase a
property apply for a conventional mortgage without a second thought.
Traditional mortgage products remain the number-one choice for property
purchases, though are not without their flaws.
Complex and time consuming, a typical
mortgage application can take as long as 12 weeks to process. During which,
applicants with imperfect credit can expect a less-than friendly rejection at
some point along the way.
But is there an alternative option
available that improves on the imperfections of conventional home loans? Could
bridging finance be advantageous over a traditional mortgage, and in what ways?
Increasingly, bridging finance is
becoming the preferred choice for buyers who would prefer to sidestep the
rigmarole of applying for a conventional mortgage. For eligible borrowers, the potential
benefits of bridging loans for purchasing a home are as follows:
1. No more broken property chains
Bridging finance effectively turns the
borrower into a cash buyer, giving them the spending power they need to avoid
becoming part of a property chain. Where
a potential buyer lets you down at the last moment or you are yet to find a suitable
buyer for your home, bridging finance can be used to buy your next
home and ‘bridge’ the gap.
As bridging finance can usually be arranged
in less than a week, it can also be just the thing for beating rival bidders to
2. Choose from a wider range of
Conventional mortgages and home loans
can only be taken out against certain types of properties. Most major banks are
unwilling to lend against homes in need of extensive repairs and renovations,
which often sell for exceptionally low prices. Bridging finance is different in
that the funds can be secured against almost any type of property in any
This gives potential buyers more
freedom of choice - particularly those looking for a ‘fixer upper’ to renovate themselves.
3. Repay early to save money
The short-term nature of a bridging
loan can also make it a highly cost-effective facility. Monthly interest varies
from one lender and product to the next, but can be as low as 0.5%. Where a
bridging loan is repaid promptly after a few months, overall borrowing costs
can be significantly lower than those of a comparable mortgage.
In addition, many bridging loan
specialists welcome and encourage an early repayment, rather than penalising it
like most conventional mortgage providers do.
4. Buy a home at auction
Auction property purchases are
typically only open to those who can pay for the homes they bid on in cash.
After the hammer goes down, you have just four weeks to repay the full
outstanding balance, or you may forfeit your deposit. As bridging finance gives the borrower the
spending power of a cash buyer, it opens the door to bargain property purchases
This is often where the cheapest homes
in need of repairs and renovations are sold, typically for significantly less
than their true market values.
5. Maximise your home’s market value
One of the most common uses for
bridging finance is to fund pre-sale renovations and improvements, in order to
maximise a home’s market value. Popular
examples of which include kitchen refits, bathroom renovations, loft
conversions and property extensions - all adding to the market value of a
property set to go on sale. Strategic renovations like these can generate the
kinds of profits that augment bridging loan borrowing costs by a sizeable
Arranged with the help and support of
an experienced broker, an affordable bridging loan taken out at the right time
can be a surprisingly profitable product.