A short term property loan is a short term loan which is secured by your business. This is usually arranged by getting a loan on the new property, and taking out a second loan on the property being sold. A bridging loan is typically a short-term mortgage that a business uses to supply cash for a business transaction until a long term solution can be arranged.
When looking into a bridging loan you will come across the terms closed bridge and open bridge. In principle a closed bridge is where the 'exit route' or 'settlement source' is already arranged typically where contracts have been exchanged but the funds are not going to become attainable in time. On the other hand, an open bridging loan means that there is not a confirmed settlement method. As with most things financial, there is a grey area between the two. The biggest things is to make sure you are arranging the right loan for your circumstances.
Because the need for a short term property loan will often crop up suddenly and without warning, it is a good idea to establish a relationship with a bank before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan dependant on the value of any security offered.
In the property investment market bridging loans can be used for completing purchases quickly; for example, when property has been secured at auction. They can also be cost-effective for clients wishing to acquire business for refurbishment and re-sale. Bridging finance can typically be used for any genuine commercial purpose as a short-term measure. Because of the short-term nature of the loan however you should expect to pay more interest and higher fees than with a long term loan.
Banks make their profit by charging interest across the life of funding. With a bridging loan the shorter the loan period the less interest they earn, as a result the rate may be higher. A short term property loan can be structured so that there is no need to make interest payments each month, the interest is effectively paid in advance with any over payments repaid when the mortgage is redeemed. In general the interest rate in determined by the perceived risk by the lender, this can be affected by the loan amount, the type of property being used as security and your credit history.
Some of the main purposes for which a short term property loan can be used for:
Because a short term property loan can be based on the Open Market Value of the business it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of short term property finance to most business investors who are often willing to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the loan. Since a bridging loan usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan.
There are now more short term property finance lenders in the UK that there have ever been, so rates are coming down and terms are becoming more flexible. When dealing with a a short term property loan broker do not be afraid of asking for the terms of the mortgage to be explained in plain English. You will often be quoted a broker fee and a lenders arrangement fee. The interest rates and any settlement charges should be made clear at the outset By using a broker you can get your application in front of as many appropriate lenders as possible and end up with several who are able to compete for your business. Short term property finance can either be based on the restricted sale value of a property or the Open Market Value (OMV). The difference is simply down to the preference of an individual bank, a specialist commercial broker will be well aware of the difference and should ensure that this is made clear to the persona applying for a loan.