Why are bridging loans so popular in the real estate market?
By: James Newland
Bridging loans are becoming increasingly regular in real estate finance transactions. They are a financing arrangement; which allows borrowers to use and meet short-term liquidity requirements until long-term financing has been sourced. Borrowers typically accept bridging loans because interim finance offers a temporary, fast and convenient way to secure a property.
In real estate finance transactions, funds typically need to be made available at short notice and irrespective or conditionally and/or speculative elements to a transaction. As such, bridge loans are fast becoming an essential part of the equation for many real estate finance transactions.
On development deals, majority of banks nowadays are unable or unwilling to or in some lend without a sufficient number of pre-lets/pre-sales in place on property developments. In circumstances such as these, bridging lenders are often able to provide a funding solution.
The key variables of any bridge loan will depend on the circumstances of each borrower, the proposed scheme, the nature of the asset being acquired or refinanced, whether it is an income-generating asset or whether interest needs to be capitalised throughout the term, the proposed duration of the loan and the chosen loan provider. However, it is clear that the efficient and effective nature of bridging finance has paved the way for bridge loans to form an essential part of any current real estate finance transaction.