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FINANCIAL SERVICES DISTRIBUTED WITH


27


Time to take a new look at short term finance What exactly are bridging loans and what are they used for?


Te market for bridging loans has soared over the past few years, breaking the £3bn barrier for the first time in 2017. Initially used as a way to mend


a broken link in a housing chain, bridging loans had typically been used to ‘bridge’ the gap between a house sale and completion. However, they’re also used for


people buying at auction, to meet strict deadlines — usually of 28 days — for people wanting to carry out refurbishments to boost the value of their homes or for numerous business purposes. In more recent years, the market


has seen a broader number of uses for short-term loans as their popularity has increased. For example, many commercial premises are now being


“People’s lives have changed too.


Bridging loans are also used for people buying at auction, to meet strict deadlines — usually of 28 days — for people wanting to carry out refurbishments to boost the value of their homes


converted into residential houses or flats, because of the expansion of permitted development rights, and bridging loans can be used in the initial stages of the conversion with longer term funding provided once the building project has started. Short-term finance can be used to buy new equipment, to build up stocks ahead of an expected rush on seasonal orders, or for buying shares in another business. Richard Tugwell, a director at


RICHARD TUGWELL, GROUP INTERMEDIARY RELATIONSHIP DIRECTOR


specialist lender, Together, said: “Tis type of finance has come a long way since it was first used in the 1960s to fix broken housing chains.


Short-term finance is becoming increasingly popular, mainly because of its speed and flexibility means that borrowers can quickly buy the home that they want, or seize a business opportunity ahead of their competition.”


by the Financial Conduct Authority (FCA) as a stop-gap. Short-term loans are typically for 12 months and the borrower pays monthly interest, which can be ‘rolled up’ and deferred until the loan ends. However, the loan can usually be paid off before the loan ends. In this case, it could be when the couple sell their previous house.*


Buy a dream home A couple may own a £300k house with an outstanding mortgage of £150k. Tey may have seen their dream home for £500k but the vendor will only sell on condition that they exchange contracts within three weeks and complete in four. Tey have savings to cover the


stamp duty, conveyancing fees, legal and other expenses but it may be difficult to get the finance from a bank or building society to buy the house in such a tight timeframe. In this situation, they could take out a short term loan, which is regulated


Buy at auction A property professional may have bought a £200k former bank building at auction to turn into flats, paying a 10% deposit. However, they’re let down five days before the sale is due to complete by a finance provider, because the bank building is classed as a non-standard prop- erty. Failure to meet the deadline will cost them their £20k deposit. Tey can use short-term finance to buy the property — making sure they don’t lose the deposit — and pay back the loan once the building has been converted into apartments, increasing its overall value.


For a commercial property investment An investor may want to buy addi- tional units on a business park and needs £1.14m to complete. However,


the seller will cut the price of the sale if the investor can pay within three weeks. His bank may be unable to provide the money needed in such a short timescale, so he’ll be able to take out a bridging loan to cover the purchase cost, secured against the other units on the business park that he already owns. Lenders such as Together could provide the loan ahead of the deadline, giving the investor time for his bank to release the funds to pay back the loan.


For further information about


Together’s bridging products, call 0333 130 2635 or visit togethermoney.com/bridging/


*Your home may be repossessed if you don't keep up repayments on your property.


ADVERTORIAL: All borrowing is subject to status and is only available to people age 18 or over. Security will be required for borrowing in the form of a charge or standard security over land. Your home may be repossessed if you don’t keep up repayments on a mortgage or any other debt secured on it. Readers should seek professional advice before acting on any information in this feature.


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