Is Bridging Finance The Right Approach For You?

It takes a lot for all the pieces to fall into place when searching for a property. You might spend months saving up enough to purchase something in a new development and find that everything has been snapped up already. You might see the perfect investment property on an auction site but don’t have the funds immediately available. That is where bridging loans can help. The concept of a bridging loan is that it literally bridges a gap while working on your next project. You can gain access to the funds you need via a reliable provider and use that to purchase the perfect property before the opportunity passes you by. You then pay back the money while making plans to turn the purchase into something special.

Bridging finance has a lot of incentives for those who are keen to make their mark in Scottish property development. However, there are also plenty of drawbacks. Let’s look at the various pros and cons to see if Scottish bridging loans are the right approach for you.

How Could You Benefit From A Bridging Loan?

The most appealing thing about these loans is that they are an accessible option for a range of property investors and developers. This isn’t just a way to get access to money to buy a new property on the market. Many use this as a secure way to gain funding while they are between projects and without the need to sell property. Buying property via bridging finance is what’s known as a non-contingent offer. This means an offer to purchase something that is not dependent on the sale of the buyer’s own property. You can use the loan to buy additional units for rental properties, bid on an interesting opportunity at auction, or invest in a business opportunity to enhance a portfolio. It is a great solution for those interested in investing in a speculative market rather than those looking for a loan to purchase a new home.

Why Are Bridging Loans So Popular With Scottish Property Developers?

Many people looking to make a sale and get the result they’re after will turn to bridging loans as an easy solution. With the right provider and the right attitude, you can find that they solve a lot of problems in a small space of time. The speed with which property developers obtain these funds is perhaps the biggest advantage. Traditional loans can take weeks or even months to come through after a lengthy approval process. This isn’t any good for those looking at auction properties with a short window of time to make an offer. It also isn’t going to work if you get a tip about a property with some units for sale that’s due to be completed within the month. Bridging loans are completely different because you will most likely have an answer in days. The timeframe can depend on any issues with the applications or necessary checks. Still, many applicants have access to the agreed amount very quickly. They are then free to use it on the desired property to secure their new investment.

You can also apply for a bridging loan pretty easily with enough preparation and the right team by your side. It always helps to work with accredited loan providers who can offer you support and legitimate options at all times. These experts will help you get the amount you need after providing all the necessary information. You need to make sure you have the appropriate ID, proof of your address, and proof of your income before you start. The latter could be through your rental income or salary. You also need a good credit score, ideally over 700, and some collateral to use as security. This is usually an existing property.

The Downsides Of Bridging Loans In Scotland

While there are some definite benefits to bridging loans for short-term finance solutions, there are also some notable downsides. You need to be fully aware of what you are getting yourself into before signing up. After all, you don’t want to end up in a worse financial situation. All Scottish bridging loan providers will insist applicants have an exit strategy in place. This is a clear plan for repaying the loan on time with the income or assets mentioned in your application. You might plan to do this with rental income from the new property or with regular payments from your salary.

Applicants who don’t have this clear existing strategy in place end up putting their collateral at risk. Remember that if you use current property as collateral, knowing you can’t make these repayments, there is the risk of repossession to clear the debt. This is a last resort because of the different options available.

The details of your repayment plan will depend on the terms determined by the loan provider. There are variable interest rates based on your circumstances and choice of plan. You could opt for a shorter plan with a higher rate of interest if you know you can pay it off in time. Lump sum payments can make this easier to manage. You can also go for longer plans with smaller interest rates if you feel it’s more sensible.

In addition, there is the issue of fees. All providers of bridging finance in Scotland will include various fees for their service, which can make the process more costly than expected. These expenses can include arrangement fees, valuation fees, and legal fees. Prepare for this in advance so you aren’t caught out.

Is Bridging Finance Right For You?

Bridging loans have a lot of potential in the right hands. Experienced property developers who are certain about an investment opportunity and have a strong exit strategy for repayments can benefit. Those new to property development and who underestimate the repayment plan could struggle. The best course of action is to find a respected bridging loan provider and discuss your options. If it feels like a wise move, you could have your loan in days and find you can purchase that dream property sooner than you expected.