10 July 2014

Short term lending has immense advantages..

During the last few years, increasing attention has been focused on short term lending, or bridging as it is more widely known.

Commentators are concerned, rightly so, that short term lending is used as a substitute for more traditional mortgage lending in order to obtain funds quickly. This is fine where speed and accessibility are of the essence, but care should be exercised where a normal mortgage could be used instead.
So, what is short term lending and what should it be used for?

It is exactly what it says it is! Money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan mainly geared to a property transaction. The most regular type of transactions include: A property being purchased at auction: The purchase of a new property whilst the current one is still being sold - usually when downsizing: Acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage:  Payment of an unexpected expense whilst more regular finance is being arranged.

There are a myriad of other reasons for which short term lending can be applied and each application is looked at on its own merits before a lender will agree to assist. The best way to look at this is as a means to an end. These lenders will need certainty on the exit route (how will they get their money back) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. So, short term lending is designed to fulfil an ability to act quickly. We have seen funds drawn in 48 hours from application!

Undoubtedly, these lenders have a growing influence in a fast moving marketplace. Interest rates charged will reflect what lenders consider to be the risk to them but will generally start around 0.65% per month although, for the more obtuse applications they will be around 1.5% per month. Short term lending has immense advantages enabling you to move quickly but as always, make sure that you fully understand all aspects of the offering and, especially, your responsibilities to the lender.

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