The easyMoney Guide to Bridging Loans
(Capital at risk - Past performance is not an indicator of future results. Not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice. Please note that the parameters contained in this blog are subject to change as our business evolves).
Here at easyMoney, making things as easy as possible is a key part of what we do.
We want our communication with our investors, both current and future, to reflect our straightforward approach. So, further to our Glossary blogs part 1 and part 2, today the easyMoney team offers you another “useful things to know” piece, to help you make fully informed decisions about your investments. Please note you should always seek independent advice before investing.
Bridging loans. Perhaps you’ll be familiar with the term, and you may already have used one as part of a property purchase. But how are they relevant to easyMoney and importantly, to your investment in an IFISA from us?
Introducing…the IFISA
An IFISA (innovative finance individual savings account) is an ISA that allows you to make peer-to-peer (P2P) lending investments within a tax-free wrapper.
It matches lenders to borrowers; that is, investors to individuals, businesses or, in the case of easyMoney, property professionals. In general – although there are no risk-free investments – those who invest in an IFISA earn higher rates of interest than from traditional savings account, not least due to exceptionally low-interest rates on savings at present. It must be remembered Capital at risk - Past performance is not an indicator of future results. Not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
You can invest your annual tax-free allowance of £20,000 or transfer your existing ISA, and the interest you earn is paid monthly, with nothing owed to HMRC.
Bridging Loans
A bridge loan is a short-term solution that “bridges the gap” between the time that a debt needs to be paid and the funds being made available; often, it’s used to buy a property before the purchaser can secure a mortgage.
Commercial Properties – the benefits are clear
For commercial properties, a bridging loan can speed things up considerably: in the world of property development, securing an asset quickly is essential. Express decisions can be made, with some bridging lenders (including easyMoney) often making funds available in less than a week. Not to mention decisions in principle being made on the day of the application.
Bridging loans can also be a powerful way to cut through some of the “red tape” normally associated with mortgage approvals. For example, some properties may offer a bargain price – but why? Because they’ve seen better days and are difficult to mortgage. The answer? A bridging loan. The developer can now not only buy the building but can also fund the costs of restoring it to a mortgageable condition.
So, short-term loans like these may sound very convenient. They most certainly seem to tick all the “suitable for purpose” boxes. Bridging loans can be flexible and adaptable. And, they are available in short order.
However, they may not be suitable for all. There are some important things to know and understand. As lenders, here are the key facts we need you to know for you to build a full picture. Please note we are not allowed to give financial advice, you should always consult an independent advisor before making a decision.
Duration
Normally between 3 and 12 months.
Interest rates
Flexibility and speed come at a price.
Interest rates are higher than those of a mortgage. Correspondingly, the interest is typically charged monthly rather than annually.
Further, there are set-up (broker) fees to consider – normally around 2% of the loan value.
Hence why bridging loans should (in most instances), be as short as possible. And why generally borrowers should have a realistic exit strategy in place.
1st and 2nd Charge Bridging Loans
Bridging loans are always secured against the assets of the borrower – called a “legal charge”. This prioritises – hence the numbers - the order in which lenders will be repaid.
What Other Uses Are There for Bridging Loans for Property Professionals?
Buying a property at auction.
Buy-to-let option. A fast, flexible way for landlords to secure a property. Which will be refinanced on a buy-to-let mortgage.
Specialist property bridging. Increasingly competitive, specialist bridging lenders can play a key role in bespoke financial solutions.
In summary, therefore, there’s a price to pay for speed and convenience.
But bridging loans can be the best solution for responsible professional borrowers. At easyMoney, we pride ourselves on flexibility and speed.
All the facts and figures presented are accurate at the time of posting.
easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.