Before selling their current property, property owners have the option to use a bridge loan to purchase a new investment property.
If you need quick funding and have equity in other properties, a bridge loan may be a suitable solution. However, it’s important to be aware of the potential risks involved, such as high interest rates and the requirement to use your property’s value as collateral.
How Do Bridge Loans Function?
When you’re ready to buy a new investment property, you want everything to go smoothly. Ideally, you would sell your current property in time to use the proceeds for the new purchase. However, sometimes there can be delays in the sales process, broken chains, or other unforeseen circumstances. This is where a bridge loan can come in handy. Bridge loans are short-term loans that allow you to purchase investment properties. Typically, these loans have a repayment period of six to twelve months. They can be a helpful solution when there’s a gap in your budget for the purchase.
To illustrate how the process works, here’s an example:
Let’s say you want to fund a down payment on an investment property. You can apply for a bridge loan through a broker or a direct lender. Once the purchase is complete, you can start working on the new investment property. When the loan term ends, you will sell your current property and use the proceeds to repay the bridge loan.
Bridge loans enable you to borrow against the equity in your current investment property for a short period. Typically, you can borrow up to 70% of the property’s value. However, it’s important to note that having at least 30% equity in your existing property is generally necessary to qualify for a bridge loan. The final repayment amount and loan eligibility will be determined by the bridge loan lender.
It’s crucial to have enough funds from other sources or assets to cover the loan, as bridge loans require repayment within a short timeframe.
Bridge Loan Brokers vs. Direct Lenders
In the UK, there has been a rise in the number of bridge loan firms offering this type of financing. However, it’s important to understand the distinction between brokers and direct lenders.
Brokers work with different funding lenders to arrange loans for borrowers. They charge for their services, which can add unnecessary costs to the process.
On the other hand, direct lenders like Bridge Direct have direct access to funds and can provide loans without involving intermediaries. Dealing directly with the lender can save you both time and funds during the loan process.
Bridge Direct, a direct lender, specializes in offering short-term bridge loans to business customers throughout the UK. They evaluate each deal on its own merits and consider applications regardless of the borrower’s credit history.
If you’re interested in exploring a bridge loan solution, you can fill out the “Get an Instant Quote” form on their website, www.bridge-direct.com. You’ll receive a call from a decision maker who will provide you with an instant decision. Alternatively, you can contact Bridge Direct directly at 020 3126 4969 to speak with a decision maker.