Bridging loans do exactly what they say on the tin – they ‘bridge’ the gap between your cash flow and tight deadlines, making them easier to pay off.
As banks and building societies tighten up their policies on lending money to aid financial crisis’s, more and more people are now looking to bridging lenders for help. However, as with all property law in the UK, obtaining a bridging loan in Scotland differs a lot more than elsewhere.
In this guide we outline all of the ins and outs of bridging loans in Scotland.
What are bridging loans and how do they differ in Scotland?
Bridging loans are designed to help people buy property where there is a lot of competition or a time restriction, so instead of waiting for lengthy mortgage applications or property chains, borrowers use bridging loans to borrow up to £25m within the space of two to three weeks.
In Scotland, bridging loans are provided for Scottish commercial properties and landlords that are building property portfolios in the UK. Applications are processed much faster than when applying for a high street mortgage as a sense of urgency is increased meaning loans can be approved in a few days.
Typically, bridging loans cover 70% of the value of a property however, in rare situations, the loan can cover the entire 100% of the value of the property.
When are bridging loans used?
Bridging loans can be used in a variety of different situations such as property investment, buy to let and property development. The popularity of bridging loans have increased tenfold in the past few years and is now being seen as a much simpler alternative to more mainstream lending schemes.
Why don’t more people use bridging loans over mainstream mortgages?
However, as tempting as these loans sound, you need to make sure that you have an exit strategy in place as rate for these loans are very high and they don’t allow as much time to pay off as a normal mortgage. Therefore you may want to look into getting a mainstream mortgage or potentially selling the property all together as bridging loans don’t give you the same long term solution as mainstream mortgages.
It is always important, when taking out any type of loan, that you properly research the ins and outs and see if it is actually the ‘perfect’ solution for your aims and financial capacity.
Who are bridging loans aimed at?
Bridging loans are generally aimed at landlords, amateur property developers and those purchasing in an auction. Basically, anyone whos looking for cash quickly, but not a long term solution.
How do bridging loans work?
Most bridging loans come in two ways – a closed bridging loan and a open bridging loan.
A closed bridging loan is aimed at borrowers that have completed the sale of a property however are just waiting on the finance to secure the transaction. These types of loans are much easier to get ahold of as there is next to no risk on the lender.
An open bridging loan is given in situations where the borrower has found a property that they now want to purchase instantly. This type of bridging loan is slightly harder to obtain as there is an increased risk on the lender due to the borrower not having much equity.
Where can I get a bridging loan?
If you are interested in applying for a bridging loan and feel as though you have all the knowledge you need then we advice that you go to an FCA regulated broker as they will give you all if the financial options you need and ones you probably haven’t even thought of!