The need for bridging increases 114 per cent year-on-year

Published: 23/05/2012

Bridging net lending has risen by a staggering 114 per cent, according to West One Loans.

The specialist short term lender also confirmed a quarterly increase of 24 per cent in Q1 2012 compared to Q4 2011.

This rapid growth is a further illustration of the difficulties faced by borrowers and therefore Introducers, in the stagnant property market with strict lending conditions and nervy lenders.

A bridging loan, or short-term loans as they are often known, is a method of financing the purchase of a property for a short period of time, typically until the buyer receives an anticipated inflow of cash such as the sale of their existing property.

In other words, this short term secured loan ‘bridges the gap’ until the buyer is in a position to finance the purchase in a more standardised manner (e.g. with a standard mortgage).

Short term loans are used for a number of reasons. These range from conventional bridging, which is where a homeowner wishes to purchase a new home but is unable to sell their current property, to auction finance or business loans.

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.

Due to the risks associated with bridging loans, it is essential for anyone considering one to seek both specialist financial and legal advice.

Content correct at time of publication