To further assist our clients in navigating the mortgage market, we spoke with Rhiannon Tandy, the Mortgage Protection Manager from our preferred property finance partner, Cherry Street Finance, to dispel the myths surrounding bridging finance.
Bridging finance is often misunderstood. Misconceptions about exorbitant costs and limited use cases can deter potential borrowers from exploring this valuable financial tool. Let’s explore some of the most common myths and shed light on how bridging finance can be a strategic solution for various needs.
Myth #1: Bridging Finance is Expensive
While bridging loans typically carry higher interest rates compared to long-term fixed-rate mortgages, the short-term nature of these loans (usually 1-18 months) plays a crucial role. You’re only paying interest for a shorter period, which mitigates the overall cost. With proper planning and a clear exit strategy, the interest expense can be minimized.
Myth #2: Only Sub-Prime Lenders Offer Bridging Finance
The bridging finance landscape has evolved significantly. A growing number of reputable lenders, including banks and building societies, now offer bridging loans with full FCA regulation. This ensures transparency, fair lending practices, and consumer protection.
Myth #3: Bridging Finance is Only for Property Developers
Bridging finance is versatile and can be used in various situations beyond property development. Here are a few unique scenarios where it can be a game-changer:
- Broken Property Chains: If a buyer encounters a delay in selling their current property, a bridging loan can prevent the purchase of their dream home from falling through. The loan finances the new property purchase until the sale of the existing one is complete.
- Un-mortgageable Properties: Certain properties, like those requiring renovation or with unusual features, may not qualify for traditional mortgages. Bridging finance provides the funds to acquire the property, allowing you to secure a standard mortgage after renovations are completed.
- Auction Purchases: The fast-paced nature of auctions often requires quick access to funds. Bridging finance allows you to act decisively at an auction, securing the property with immediate financial backing.
Myth #4: Bridging Finance is Risky
As with all types of property finance, there are risks. Failing to meet your traditional mortgage payments can negatively impact your credit profile or, in the worst case, result in losing your property. The same applies to bridging finance, which is why it’s imperative to seek the right advice before signing up for a product. With a solid plan, a clear exit strategy, and realistic timescales, there should be no reason to worry about additional risks posed by bridging finance.
Bridging finance is a powerful tool when used strategically. By partnering with a reputable FCA-regulated Specialist Mortgage Advisor and understanding the true costs and benefits, you can unlock its potential for various financial needs.
Find out more about our property agency consultancy services and more about Cherry Street Finance.
