Rapid growth in bridging loans due to them being the only option

Over the past few years the number of people taking out bridging loans has increased dramatically with the amount of bridging lending doubling during the last 12 months alone.

This is very much to do with the consequences of the credit crunch because lending sources that were once very much available to people are no longer. Bridging loans have less stringent lending criteria to other sources of finance, so having failed to find a method of finance through the more traditional sources some people are turning to bridging loans as an alternative option.

The important thing to remember is that bridging loans are a short term method of finance and should only be taken out if this is what they are going to be used for. As a long term method of finance a bridging loan is expensive and should not be used for this type of financing. In the past if a short term finance option was required then a bridging loan would be taken out, but if a long term loan was required then a more suitable longer term option would be used. The problem today is that the long term options that had flexible lending criteria have gone, but bridging loans with flexible underwriting still remain, and are in fact growing in popularity.

Some people taking out short term bridging loans are doing so without looking at the long term and how the loan is going to be repaid. For investment property refinancing using a buy to let mortgage isn’t always an option if the applicant has a poor credit score. Therefore using a bridging loan to buy at a property auction is a common and sensible option, but people need to check to see if they are eligible for a buy to let mortgage otherwise they may have a problem when it comes to clearing the bridging loan. In the event that 6 months down the line a buy to let mortgage isn’t available then the property owner may have to sell the property quickly in order to repay the bridging facility, perhaps back through auction.

Many watchdogs are concerned about the growth of bridging loans because if used incorrectly they can prove to be very expensive. So if you are considering this type of facility remember they should only be used as a short term method of finance. Therefore you need to have an exit strategy and this could be through the sale a property or refinancing. If you are selling a property in order to repay a bridging loan then make sure you know what price you are likely to receive for the property taking into consideration the time frame you are allowing yourself. If refinancing through a buy to let mortgage or some other longer term finance facility, make sure you meet the required criteria and are able to obtain the finance you require.

KIS Finance are fully aware about how easy it is for individuals and businesses to take out the wrong type of finance for their requirements and work with their customers to ensure that they receive the most suitable options.