23 May 2013

Short Term Finance

The ‘Short Term Lending’ market continues to grow at a rapid pace.  Specifically geared at fast financial assistance, perhaps to purchase a property at auction or to enable a new purchase prior to sale of an existing property.  This is normally with a monthly interest rate and with a pre-agreed ‘exit’ route.

The term ‘Bridging Finance’ is quickly becoming a household name but most lenders now like to title it under the banner of Short Term Lending.  Many lenders in this sector of the mortgage market will offer loans up to 75% of the property value (sometimes higher with additional security offered). The loan is usually calculated and charged on a monthly basis and, in all fairness, can be quite pricey! Some of the lenders are happy to allow a 'roll up' of interest (no committed monthly payment) with the full debt settled at redemption.  Interest rates start from, circa 0.69% per month and normally are arranged over a period of between 1 to 18 months.  Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee.  However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold on at profit.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet.  A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others.  However, where there are positives, there can be negatives!  Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is often six months.  So please ensure this is factored in to any purchase, budget calculations and financial requirements before committing to any Short Term Funding/Bridging Finance.  For more information, or to discuss a specific scenario, please contact us!

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