Homebuyers and sellers could save themselves an average of £1,300 by utilising a bridging loan to avoid the cost incurred should their transaction be in danger of collapse, according to the latest market analysis by bridging finance specialists, Apex Bridging.
Apex Bridging analysed the current bridging loan market – based on 69 currently available products – to see what the current cost of a bridging loan is, what this means for those looking to utilise them, and how much bridging can save them compared to the cost of their transaction falling through.
The data compiled across 69 current products shows that, in the current market, the average bridging loan comes at a maximum loan-to-value (LTV) of 70%, while the average interest rate for a bridging loan is currently 10.8%, with the addition of a 2% setup fee.
Chris Hodgkinson, managing director of Apex Bridging, said: “Bridging can be a valuable route to acquiring quick capital.
“As a finance option, it’s best suited to those who already have an investment plan in place, thus ensuring the loan can be repaid in a timely and, therefore, affordable manner.
“However, in uncertain market conditions, bridging can also be a valuable option for residential homebuyers and sellers to help them avoid their transaction collapsing.
“This is particularly important today when the conveyancing process is often so unpredictable and elongated.”
He added: “Even in the instance where a bridging loan costs you more than the average fall through does, it still saves you huge amounts of time and energy by enabling you to avoid the process of returning to the very start of the buying or selling process.
“To many, this is far more valuable than the marginal additional cost a bridging loan would see them pay.”
According to Apex’s findings, for those who are looking to use bridging for a period of six months, the average bridging loan would see them pay £15,246 in interest based on the current average UK house price of £294,329.
This type of bridging loan, with its relatively long time-frame, would most commonly suit someone who is looking to buy an investment property and refurbish it to improve the condition before seeking long-term financing.
However, other common reasons for bridging require a much shorter loan period with the most common example being the ability to rescue a residential sale from collapse due to delays or broken chains.
In such cases, Apex has found that the interest incurred when using a bridging loan over one month and with no setup fee is £1,854.
Compare this to the average cost of a fall-through, £3,209, and it’s found that a bridging loan can save buyers and sellers £1,355.
If, however, a setup fee of 1% is included, the cost of bridging will end up being £706 more than the cost of a fall-through.
But the time and stress that is saved by not having to drop out of and re-enter the market is often considered to be well worth this small additional cost.
