Are homeowners at risk as unconventional bridging increases?
Over 80 per cent of mortgage brokers are using bridging finance for reasons other than classic bridging cases, according to a recent survey.
United Trust Bank has found many bridging loans are being taken out to solve such problems as short term cash flow issues and to raise capital.
Alan Margolis is the Head of Bridging at United Trust Bank:
“When you mention bridging loans the first thing that generally comes to mind is the ‘classic bridge’ used to bridge the gap between a purchase and a sale. However, our survey shows an increasing number of brokers are realising that bridging loans can be used for many different purposes from capital raising to solving short term cash flow problems and that there are a myriad of scenarios for which bridging may be a suitable solution.
“In my view the varied use of bridging finance is an important driver behind the growth in the sector and supports the survey’s findings that many brokers will continue to place significant amounts of bridging business. As more brokers introduce their clients to bridging they will discover more varied uses for this flexible financing solution.”
While it is encouraging to see activity in this sector increase and for brokers to be thinking outside the proverbial box, it is essential intermediaries and clients alike are fully aware of the risks associated with bridging loans.
Goldsmith Williams advises anyone considering a bridging loan to have a realistic exit strategy to minimise the total cost. If you do not have a viable exit strategy, or think there is a strong risk the planned exit will not work, you should think very carefully whether to proceed. You will be at considerable risk of losing the property if you fail to repay the loan at the end of the term.
Short term loans are generally suited to borrowers who want money quicker than can be obtained from mainstream lenders such as banks and building societies, or where they will not lend due to the current state of the property e.g. where it needs a kitchen or bathroom installed to make it habitable, or due to their underwriting criteria.
As the name implies, the loans are only suited to those who need the money for a short time. They are not suitable as a replacement for long term finance. The most important aspect of taking out a short term loan is making sure you can repay it by the due date.
Content correct at time of publication