Bridging Finance for your Property Investment

Bridging Finance for your Property Investment

Bridging finance is a stop-gap measure to solve a problem – how
to complete on the purchase of a property when the sale of your
own has not yet been finalised or when a mortgage on the new
property has yet to materialise. It is a temporary measure (never
open-ended) and has been traditionally provided by the banks.
For the property investor, the need for bridging finance is most
likely to arise following a successful bid at an auction (auction
catalogues routinely carry advertisements for bridging loan
companies). When a property is bought at auction, 10% of the
price is paid immediately in cash and the balance is due 28 days
later. If a mortgage hasn’t already been arranged (and it rarely
can be), it must be put in place before the deadline for
completion. Failure to meet this deadline will result in the loss of
the deposit. It then gets worse. If the property is subsequently sold
for less than your bid, you could be liable for the shortfall!
Most lenders simply don’t work fast enough for this. A valuation
needs to be arranged, the searches made, the offer issued, the legal
work completed and the funds transferred. In the meantime,
anything can go wrong. A poor valuation report can play havoc
with the timetable. The lender may retain some funds until
essential work is carried out. The valuer may call for an
engineer’s report, resulting in further delays and expense. Some
lenders can take five working days just to transfer funds! For this
reason many successful bidders at auction find themselves turning
to the providers of bridging finance.