A residential or buy-to-let bridging loan can be used anywhere where a property investor needs to move more quickly than usual. It can also be used where the investor does not necessarily meet the requirements of a traditional high-street lender, as unregulated lending is often much more flexible than the mainstream banks.
The four main reasons to use a bridging loan are:
1. To counter delays caused by long-term lenders
Many borrowers use a buy-to-let or residential bridge loan because they are fast. Traditional lending is a long process. In many cases, it can take up to 130 days – even for a seemingly simple application. With such a large amount of time spent waiting for funds, this delay can put the borrower’s residential purchase at risk of falling through, or open to gazumping tactics from other buyers.
2. To purchase new build investments
Buying new build properties is particularly popular with overseas clients. The period of exchanging and completing on a new build is generally set by the developer and is often around 2 weeks. This puts the borrower at risk of losing their deposit if they are not able to sort finance in time. A BTL or residential bridge loan is usually required when the buyer is not able to secure the funds through a traditional lender by the set completion date.
3. To buy a property at auction
Auctions can be a great place to look for good value properties, whether it be residential or commercial. They are also popular for those looking to work on refurbishment projects, so that they can redecorate, refurbish then resell the property for a potential profit. Auction finance is designed to move quickly, as auction houses usually provide a tight completion window, averaging only 28 days.
4. To release funds for other ventures
If a client is looking to expand their property portfolio, a buy-to-let and residential bridging loan can be a short-term finance solution for purchasing commercial assets or embarking on other business ventures. Much like with residential properties, this is usually due to the speed in which funds can be deployed and the flexibility that the capital provides to the client. They can secure their BTL bridge loan on the residential asset in order to release funds. If they are purchasing a commercial property, there is also the option to look at a commercial bridging loan, which secures the loan against the commercial asset being purchased.