Do the banks do enough to help those requiring property bridging loans?
When you are moving from one property to another you will be very lucky if the handover dates match and whether everything is seamless. When you also take into account the competitiveness across all real estate markets sometimes you don’t have the time to delay a property purchase or property sale and you need to take on board a sale and purchase at the same time. So, do banks around the world do enough for those needing property bridging loans?
Before we start, there are obvious risks associated with bridging loans because collateral would be required as some kind of fallback and they are not for everybody.
When would you need a bridging loan?
As we touched on above, if you are downsizing, or upsizing, it is highly unlikely that the handover dates for each of the properties will match perfectly. Indeed, you may have signed to acquire a property and then find that the buyer of your previous property has ducked out and you are left in a difficult situation. While this is not the end of the world, you need to go into bridging loan situations with your eyes open and be realistic.
Quote from PropertyForum.com : “I have just finished watching a US TV programme which shows investors buying properties auctioned off by the banks, renovating them and quickly flipping them for significant profits. While I have been aware of flipping properties for some time, it made me think, is this practice still profitable…..”
There is a general feeling that because of the relatively small margins involved, and the often short lending timescale, the major worldwide banks have left this particular area of the market underfunded and underserviced. When you bear in mind that somebody who is acquire property, and selling another property, will at worst have the initial property as collateral, in theory the risks are relatively low for either party.
How long is the average bridging loan?
How long is a piece of string? The length of a property bridging loan will depend upon the individual’s particular circumstances with some loans just a number of weeks while others could drag on for months. There are obvious costs associated with longer term bridging loans which need to be taken into consideration although in reality you might assume that if a buyer had fallen through for your initial property then there was genuine interest there and you should be able to find another buyer relatively quickly?
The size of any bridging loan will again depend upon the individual’s financial circumstances as well as the original property in question and its value less any outstanding mortgage payments. Some of the numbers may be big, some of the numbers may be small but in theory this is just a numbers game because whatever bridging loan agreed, it will be backed by assets.
Be careful
Some of the greatest dangers facing those looking towards property bridging loans would be a short to medium term change in their financial situation, such as unemployment, or perhaps the property market takes a downturn and they are not able to sell their original property. In theory, you could argue that the longer the bridging loan goes on, and the longer the original property remains unsold, the more pressure to take a potentially lower/unrealistic price purely for financial peace of mind?
If you’re looking towards property bridging loans it is vital that you take professional financial advice at the earliest opportunity to see whether this particular service is for you, whether you can afford it and also make sure that you are fully aware of the pros and cons. Go in with your eyes open!