What are the pros and cons of bridging finance? 

Pro – SPEED – it is always good to know that you can complete a deal within 2 weeks when using bridging finance. It allows you to purchase deals as you would with cash, also allows you to buy at auction without using cash or a mortgage. 

Pro – you can be more lucrative with cash – Because of the structure of loans and how lenders will lend against the asset. If you managed to find a property worth £100,000 but you managed to pick it up for £75,000 by promising a quick sale, then you can lend the full amount of purchase from lender using 75% LTV

Pro – you can be more creative. – There are situations where unless buying a property with cash or a bridge then it is not possible. Mortgage providers require the property to be habitable (working kitchen and bathroom). If you find a deal where the property is not habitable and don’t have the funds in place for a cash buy, a bridging loan is the next best thing for you. 

Con – risk. If you default on your loan or cannot pay it back at the end, then the lender is able to sell your property at any price they wish to cover the amount you owe. If your exit plan isn’t clear and you are not sure how your going to pay back then it’s probably best to avoid. 

Con – Costs – As you will know now there are a lot of hidden costs in a bridging loan. You need to make sure that the project you are planning still has plenty of profit left after taking into consideration the costs of the loan.