Since 2018, there has been a substantial rise in the Bridging loans sector. Bridging loans are short-term loans that temporarily bridge the gap between buying and selling properties.
We have enlisted 10 essential facts about bridging loans that might surprise you; these facts include:
1.The sector’s total value now exceeds £7 billion
The bridging loan sector is growing fast. According to the latest estimate, the bridging finance sector is now worth more than £7 billion per year, and this figure is still going upward.
2. Unregulated bridging loans continue to dominate
There are two types of bridging loans, regulated and unregulated bridging loans. Regulated bridging loans are loans taken for residential purposes, whereas loans for commercial purposes are considered unregulated bridging loans. According to estimates, 60% of bridging loans issued in the UK are unregulated, meaning they are for commercial purposes and are not protected by the Financial Conduct Authority.
3. Bridging finance, a new form of mortgage
Bridging loans date back to 1960; at that time, they existed in the form of mortgage products that were issued for the short term. It was exclusive for property purchases.
4. The credit crunch of 2008 catalysed the sector
This sector emerged as the latest trend in the lending market amidst the 2008 recession, when the lenders seized loans for property developments and refurbishments. During that period of the credit crunch, the lack of support from major banks and High Street providers made borrowers take their business to the UK’s specialist lending network, i.e., bridging loans.
5. Traditionally, bridging loans terms were restricted to nine months
Earlier, the maximum loan term for bridging loans was just nine months. As they were short-term loans that were supposed to be cleared before a year. Over the years, the Bridging finance providers began offering flexible terms for the borrowers. Now bridging loan terms are flexible enough that they can be as short as consisting of a few weeks or as long as consisting of 36 months.
6. A bridging loan is not only specific to the property
Primarily bridging finance is associated with property purchases and investments in a similar sector.
Now, they are used in multiple domains, such as for purchasing shares in a business, building up their product stocks before seasonal orders, and for any legal purpose whatsoever. This makes it a far more flexible loan service than other loan facilities.
7. Bridging finance is a relatively new term
Before the credit crunch of 2008, bridging loans were referred to as ‘short-term loans. The term short-term finance then evolved to modern-day bridging loans after 2008.
8. Alternatives names of the bridging finance
Bridging loans occasionally are known by other names as well, such as swing loans, gap financing, or interim financing;
these alternative names for bridging finance signify that they are covering the financial gap.
9. The Association of Short-Term Lenders was established by bridging lenders
After the 2008 credit crunch, the Association of Short-Term Lenders (ASTL) was founded in March 2008 by 19 bridging loan firms. Currently, ASTL has 36 members and 25 service providers. The goal of ASTL is to increase professionalism, set standards, and provide insight to HM Treasury.
10. Bridge-tech is disrupting the lending market
A financial technology disrupting the finance sector is Fintech, and lend-tech is its major part. A massive influx in the bridging finance sector will be seen as bridging loan technology as the world is becoming more digital and open banking is progressing.
Why is the bridging sector gaining popularity?
The bridging sector is growing and gaining popularity; 87% of bridging finance providers think there will be a greater turnover of their business soon. There are the following reasons why bridging is getting popular in the lending market as compared to other lending facilities.
Flexibility: Bridging finance offers flexible lending and repayment criteria. The term duration is usually 1 to 12 months but it is flexible enough to extend up to 36 months.
There are no mandatory requirements for a good credit score or proof of income; rather, borrowers with bad credit may also avail of bridging loans conditionally. With a traditional mortgage, you cannot get a loan with a bad credit history.
There is flexibility in paying interest on loans; you can either pay it monthly or through a rolled up, retained interest option.
Quick Funding Solution: Unlike a traditional mortgage, you can get quick funding. You can get funds in as little as 24-48 hours.
Short-term loans: Unlike mortgage loans, they are short-term, and you can clear the debt as soon as possible without any early repayment fees.
No Exit Fees: After repaying the agreed loan amount along with interest. you are not supposed to pay any exit fees.
Diversity: Bridging loans are diverse in nature. they can be used for multiple purposes, including residential or commercial.
The advantages mentioned above prove why bridging loans/p2p lending are growing and getting popular in the lending market.
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