What are the mechanics of a bridging
loan and what should the consumer concern themselves
with? The often advised considerations of a bridging loan
are to confirm the rate payable, depending on charge type
anything between .95% on first charge upwards to 1.75%
on second charge and/or blended rate. Since Mday (31/10/2004)
within the United Kingdom and the involvement of the FSA
all charges will be clearly identified within a KFI (Key
Features Illustration). There will undoubtedly be an arrangement
fee of anything between 1 to 1.5% of the loan advance,
however the consumer must be advised and be made aware
of any 'exit' fees. What is also commonly overlooked by
the consumer and homeowner and a vital pre requisite is
an identifiable exit route out of the agreement.
Closed bridging finance is available to homeowners who
have already exchanged on their intended purchase property,
should completion after exchange be a drawn out affair
the homeowner has the peace of mind that their property
will sale i.e. an identifiable exit route.
Open bridging finance is far more high risk for the homeowner
and should not be entered into lightly. This type of bridging
is typically for homeowners who have found their ideal
property but their sale would seem protracted and/or a
buyer has not been found. Open bridging would typically
attract an additional 1% over closed bridging confirming
the higher risk. Lenders will also, as part of their underwriting
criteria, ensure that the security property has plenty
of equity. The lender would also want to see a mortgage
offer along with proof that your existing property is
being actively marketed.
While illustrating open bridging as somewhat high risk
there are also many positives to bridging finance. There
would be typically no valuation or legal fees as legal
work is usually done 'in house'. With the consumer also
encroaching into the residential and commercial
property auction arena, bridging loans are also an
ideal means of securing the property at auction, exchange
would happen on fall of the hammer and usually leaving
20 working days to completion.
Looking at the wider picture and asides from property
bridging loans also offer such facilities as "buying
out" a bankruptcy which can allow a consumers home
and business to survive along with improving cash flow.
This is also an ideal alternative to an I.V.A (Individual
Voluntary Arrangement) which interferes with a credit
record for a considerable period of time. In addition
the fees involved in an I.V.A. can be very substantial
and generally unsuitable unless there are multiple creditors.
Buy to let investments and self build projects also benefit
from bridging finance. A buy to let property where a 100%
retention might be imposed would be if the property is
considered either uninhabitable or there is no bathroom
or toilet. With self build projects or development the
money is released in stages, each stage being signed off
by the lenders appointed architect and then the money
released.
Other instances may well be when the trustee of a deceased
estate are unable to obtain probate because of unpaid
taxes. if there is insufficient cash in the estate and
the property can not be sold bridging is the answer. Repossessions
can also be relieved even if the homeowner has received
the judgment. One common misconception is that once evicted
the dispossessed homeowner has lost the chance to recover
their home. This is not the case as any mortgagee will
want to recover their money as quickly as possible without
the fuss of marketing.
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