Bridging loan boom as homeowners look to break property chains
"Bridging loans give some buyers a different route to get their property purchases completed," says Karis Capital's Francesco Amato.
The value of new bridging loans taken out by homeowners has jumped £1.83billion, new research has suggested.
The increase covers the 12 month period to the end of March this year, and is up from £1.75billion during the same period a year earlier.
The analysis was carried out by specialist debt and insurance advisory group Karis Capital, which attributed the increase to a shift in the property market.
Property chain delays
It said that the rise in the value of bridging loads has partly been driven by the increase in homeowners looking to avoid lengthy delays in property chains.
Rather than wait months for other properties in a chain to complete, buyers are using bridging loans to push their own purchases forward, it said.
They do this by repaying the loan and refinancing onto a long-term mortgage once their existing property sells.
Bridging loans give some buyers a different route to get their property purchases completed.”
Francesco Amato, Senior Associate in Specialist Regulated Finance at Karis Capital, (pictured) says bridging loans allow borrowers to “break the chain” when an unpredictable housing market makes it difficult to sell before buying.
Lenders provide this finance on a short-term basis – typically between a few weeks and 12 months – provided the borrower has a clear exit strategy in place.
Bridging loans typically carry higher interest rates than conventional mortgages and, without a clear exit strategy, can leave homeowners exposed to significant financial risk if a property sale falls through or is delayed.
Purchase completions
However, Amato says: “In a property market that is being slowed by fluctuating interest rates, bridging loans give some buyers a different route to get their property purchases completed.
“While a bridging loan won’t be suitable for everyone, it’s an option that allows buyers in some situations to move their purchases forward when a conventional mortgage isn’t suitable.
With the right exit plan, they are an important tool for property buyers.”
