GUIDE: The risks and rewards of bridging loans for property investors

Bridging loans are used for a numer of reasons but particularly by property investors purchasing buy-to-let or ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - GUIDE: The risks and rewards of bridging loans for property investors | LandlordZONE.

GUIDE: The risks and rewards of bridging loans for property investors

Bridging loans are used for a numer of reasons but particularly by property investors purchasing buy-to-let or development purposes, ir buying a distressed sale or at an auction.

In their simplest form, bridging loans are used to finance the gap between buying a new home whilst waiting for your existing home to sell so you can release the equity.

As an example, let’s say you want to buy a property for £600,000, you plan to have a £200,000 deposit and a £400,000 mortgage. But you currently only have £60,000 in cash and need your existing property to sell in order to free up the rest of the deposit.

Unfortunately.the sale of your home has just fallen through and you don’t want to risk losing your dream home which you have already paid various fees on such as surveys etc. So, you take out a bridging loan for £140,000 to ‘bridge the gap’ and repay it once your property sells.

Seems likely a fairly simple solution, right? Before you make your mind up, let’s look at bridging loans in a little more detail.

Open and closed

There are two types of bridging loans.  The first is an open bridge loan which has no set end date, meaning it can be repaid when the funds become available, although typically within six to 12 months.

The other is a closed bridge loan which is used when you know exactly when you will have the funds available to repay – these are normally used for shorter term loans of a few weeks or months.

But it is important to know that bridging loans can be quite costly, particularly open bridge loans (due to their flexibility), so you need to factor this into your calculations and your plan to repay.

s an example, annual rates on bridging loans can be more than 10% and can often have fees attached to the terms such as admin, legal and even exit fees.

The pros are obviously that they can provide a great short-term source of finance to help with a property purchase and in many cases can be repaid early without penalty.

The cons are that, if you are borrowing over a longer period, then the interest charges are likely to be much higher than a standard mortgage and if you don’t keep up with payments, your home is at risk.

Remember that having another mortgage-size debt is a big financial burden. Unless you know when your home sale is going to go through, it could leave you significantly out of pocket and therefore is not always the best way of beating property-chain problems.

 During a property boom, like now, during which buyer demand is high, the risk is lower as the chances are your property will sell sooner rather than later. 

But if the market suddenly slackens off, as it very easily could as the economic impact of the pandemic becomes reality, then buyers should take a cautious approach.

If you have been considering a bridging loan, we would advise that you consider all alternatives as well, before putting yourself in greater debt.

Have you considered selling your home to a cash buyer like WeBuyProperty? If you need to have sold your property by a certain date for any reason, feel free to contact us for a no-obligation chat about how we could help you achieve this and save you having to take out a loan.

Phone number: 0207 449 9797
Email: info@webuyproperty.com

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - GUIDE: The risks and rewards of bridging loans for property investors | LandlordZONE.

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Suspected gas explosion serves as wake-up call to lax landlords

The tragic events of Sunday morning, in which two-year-old George Hinds was killed and four adults were ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Suspected gas explosion serves as wake-up call to lax landlords | LandlordZONE.

Suspected gas explosion serves as wake-up call to lax landlords

The tragic events of Sunday morning, in which two-year-old George Hinds was killed and four adults were injured in a suspected gas , Lancashire, have sent shock waves far and wide.

Two properties (pictured above, before the explosion) collapsed and a third was seriously damaged in the blast. Following the devastating incident, 30 to 40 people were evacuated from their homes. Matt House, from North West Ambulance Service, said he had not seen an explosion like this one in the UK during his 20 years of service.

The investigation into the cause of the horrific explosion is currently underway, with officers working their way through the very difficult site. Assistant chief fire officer Ben Norman, has said that investigators are viewing a gas explosion as “the most probable cause, but we’ll only confirm that clearly when the experts make their conclusions.”

How common are explosions in residential properties?

Fortunately, explosions are rare in residential properties, but when they do occur it is generally due to gas leaks. However, an article published in The Independent in February, highlighted an – nine suspected gas explosions affecting tenants and homeowners across Britain between late October 2020 and February of this year, with four people killed and 13 injured, along with dozens of others evacuated from their homes.

Although they generally happen infrequently, the spate of recent blasts follows a 33 per cent rise in the number of gas explosions and fires linked to flammable gas, according to the . The figures reveal that there were 41 gas explosions and fires from flammable gas causing death or injuries in the year until April 2020, an increase from 31 incidents the previous year.

A spokesperson for the HSE told The Independent there were no plans to review the rise in cases, but some safety experts and gas safety groups have been calling on government to take a wider look at gas safety in the UK, asking why so many explosions have been happening at domestic properties lately. This most recent incident serves as a stark reminder to all property owners, of the importance of doing all you can to make sure your property is safe.

What are landlords’ gas safety obligations?

As this particularly tragic case highlights, gas safety must be taken very seriously. While property can be replaced, lives cannot. Landlords have to comply with a lot of regulations, but those relating to gas safety are among the most important. Penalties for landlords who are not compliant with gas safety regulations are up to £6,000 for each offence, or six months in jail. If a tenant dies while staying in your property due to negligence, then there’s even the possibility of being prosecuted for manslaughter, which can lead to a long sentence. 

The  apply to any landlords providing a property with a gas appliance or with gas lines connected. Landlords must make sure gas appliances and flues are safely installed and maintained by a Gas Safe registered engineer.

If you’re letting a property with gas appliances in it, you are responsible for:

  1. Scheduling gas safety checks – During a gas safety check, a  will make sure that your boiler is working properly and that your tenants aren’t at risk. Learn more about .
  • Maintaining a record of and providing your tenants with copies – landlords must provide a gas safety certificate at the start of the tenancy (before the tenant moves in), and within 28 days of each annual gas safety check, if there is a gas installation.
  • Any other maintenance associated with gas appliances you’ve provided. Although landlords aren’t responsible for the safety of tenants’ gas appliances, if they connect to the property’s appliances, you are responsible for the condition of the connecting flues and pipework.

Landlords must also be aware that, in respect of Assured Shorthold Tenancies (ASTs), a Section 21 eviction cannot be used if a copy of a valid gas safety certificate has not been provided to the tenant before the tenant entered into occupation of the property.

Steve Barnes, Associate Director at Hamilton Fraser Total Landlord Insurance advises, “The best ways to prevent yourself from facing the justifiably harsh penalties for non-compliance with gas safety, are to make sure you schedule a gas safety check at least once a year (more if you have appliances that need it) and to keep a record of your Gas Safety Certificates and checks. If you use an agent to manage your property, make sure that your contract states who is responsible for what and that your agent provides you and your tenants with new Gas Safety Certificates on at least an annual basis. If you have any questions about how gas safety might affect your insurance policy, feel free to contact our team on 0800 63 43 880. Our policy will cover most eventualities but does not include incidences of faulty workmanship or any pre-existing defects or damage or wear and tear.”

What can you do to protect your tenants and your property?

Any fire needs three things to come together – fuel, oxygen and ignition. In the case of domestic gas explosions, there are four things that need to combine: gas (the fuel), oxygen (which is present in air), the ignition (for example a lighting a cooker or switching on an appliance) and a fourth cause which is almost always poor workmanship or human error of some kind, for example poor maintenance or a faulty appliance.

Preventative measures are always the best when it comes to stopping explosions caused by gas leaks from happening; fortunately these are within landlords’ control:

  1. Regular maintenance – ensure installations and annual services are carried out by a Gas Safe Register engineer. Infrequent checks to heating appliances can lead to gas leaks which can result in explosions.
  • Contact details – it’s crucial to act fast in an emergency. Make sure your tenants have the correct contact details if they suspect a gas leak. has detailed information on who to call and what to do if your tenants smell gas or have been feeling unwell and experiencing headaches, nausea or dizziness and suspect it’s carbon monoxide poisoning.
  • Flammable substances – advise tenants to minimise the use of flammable substances and never to leave combustible substances near heat.
  • Gas ovens – if you have a gas oven in your property, make sure tenants know how to use it, and remind them to turn it off correctly.

If you smell gas or suspect a carbon monoxide leak

Call the national gas emergency helpline on 0800 111 999.

  • Do turn off the gas at the meter unless the meter is in a cellar/basement
  • Do put out naked flames
  • Do open doors and windows
  • Do keep people away from the area affected
  • Don’t smoke or strike matches
  • Don’t turn electrical switches on or off

For more information on landlords’ responsibilities for gas safety, including what to do if your tenants prevent you from carrying out a gas safety check, read Hamilton Fraser Total Landlord Insurance’s Landlords’ guide to gas safety: everything you need to know.

As a valued LandlordZONE reader you’re entitled to 20% off Hamilton Fraser Total Landlord Insurance’s policies, call the team today on 0800 63 43 880 quoting code LZ2021 or get a quote online in under 4 minutes. 

Pic credit: Google

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Suspected gas explosion serves as wake-up call to lax landlords | LandlordZONE.

Source : Landlord Zone More   

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