Why a bridging loan may be the best solution for borrowers

There are many reasons why people choose to take out a bridging loan. Bridging loans solve problems for buyers because they offer many advantages, with one of the main features being the speed of application and receiving funds.

For most people looking to access short-term finance, speed is of the essence. It is also an enabler, whether that be to raise capital, undertake a refurbishment project or achieve a remortgage which often requires an ownership period of 6 months. Good bridging lenders understand the varying needs and aims the borrower is trying to achieve and will work closely with the client, broker and other parties to achieve the right outcome, in a timely manner.

So, how quickly can you get a bridging loan? In most circumstances, bridging lenders are able to arrange finance much quicker than mainstream lenders, often in days or weeks rather than months. It solely depends on what the borrower is trying to achieve and their situation. Heads of terms, or Agreements in Principle, can be provided in as little as an hour and if the circumstances are right a loan can be in place within just 72 hours. If the lender is to act quickly, they need to receive essential information from the borrower, broker and their solicitor, e.g. confirmation of ID, a property valuation (or payment to instruct valuers) and details of the borrower’s proposed exit strategy.

Compared to a traditional mortgage provider, bridging lenders require a lot less information to get the ball rolling, making the process a lot quicker for the borrower. However, it is naturally very important the information provided is accurate, complete and submitted quickly, as any delay in doing so inevitably slows down the process.

The advancement of processes and technology has made a huge impact on how quickly buyers can reach completion. Hope Capital recently adopted an automated valuation model (AVM), which is a mathematical and statistical service providing quick, real estate property valuations. Although physical valuations are still an option, AVMs along with desktop valuations now have a permanent place, as a viable solution which can help to speed up the process.

Hope Capital have also embraced new ID verification and messaging technology, which make it easier and quicker, for both lender and borrower, during times when you cannot meet face-to-face. In 2020, Hope Capital partnered with tech firm, Nivo to introduce facial recognition software into the onboarding process. This eliminates the need for face-to-face meetings, while also being more secure and more accurate than relying on paper documents, which can be easily forged. It is therefore much more streamlined, as customers can be onboarded from wherever they are, at any time.

Nevertheless, while speeding up the process is of paramount importance for borrowers, it is still essential lenders are transparent about the time it will take to complete a deal. Not only should a lender be upfront about the charges and fees involved, but also how long the process will likely take. While there is no doubt bridging loans are quicker than traditional methods, such as mortgages, how quick the buyer can get to completion will depend on their individual situation.

So, is a bridging loan or traditional Buy-to-let mortgage better? It is impossible to compare the two, as both finance options are completely different and used for different purposes. For example, bridging loans are usually arranged for short-term requirements, whereas a BTL mortgage is a long-term option for property investors. Many borrowers use a bridging loan as an immediate funding solution and then move onto a BTL mortgage after several months. Additionally, bridging lenders provide bespoke finance that is tailored to suit the borrower and their requirements, compared to Banks and other mortgage providers which can lack in this area.

Bridging loans are becoming a first-choice product solution for borrowers when the circumstances are right. This type of finance can serve many purposes, including buying a property at auction, proceeding before a sale has completed, raising capital for business purposes and so on. Specialist finance is an effective solution for a range of borrowers, which is why the demand for bridging loans is set to continue indefinitely.