Bridge Loan Industry Awaits Important Comments on Payment Holidays
The growing bridging loan industry is awaiting important comments from the UK government on whether or not customers can qualify for payment holiday during COVID-19.
Bridge loans are often used as a way to “bridge the gap” between buying and selling another property and are often used by individuals and businesses to avoid traditional real estate chains.
In the event of the coronavirus, the UK government was quick to offer a three-month mortgage holiday to struggling households, which will save the average home around £ 2,100 over the three-month period.
These measures were followed by a business interruption scheme for the hardest hit businesses and payment holidays for personal loans, auto financing and personal loans.
However, for bridging loans, there are no concrete guidelines yet and the guidelines remain unclear, with some funding being under-regulated and unregulated.
There are around 50 to 80 bridge lenders in the UK, the best known being Precise Mortgages, Masthaven and MT Finance.
The vast majority of lenders have stopped funding new investigations during the coronavirus lockdown, which will impact the overall value of the sector which funded £ 4bn in 2018 and £ 7bn in 2019.
But for the thousands of people who use bridging loans each month, the role of payment holidays could be significant.
Therefore, bridge financing is a more expensive form of borrowing, largely because it is used for short-term purposes and for periods of up to about 24 months. For those households that have used the transition to move, they are relying on the option of selling their own home to pay it off. However, with delayed completion and move dates due to covid-19, they risk using the products longer than necessary and incurring higher fees.
Similar challenges apply to those using bridging loans for business purposes, with construction and renovations delayed for six weeks or more. Borrowers may pay more months of bridging finance than they need, but a huge problem arises when it comes to the end of the long term and the borrower risks repossession or refinancing. , but on potentially much less favorable terms.
Nicholas Wallwork of the Property Forum explains: “The vast majority of construction sites are at a standstill. As a result, those working against tight bridging loan financing repayment dates will find it difficult. The property / project, if work does not resume very soon, would probably be worth far from its target value. As a result, they would not be able to raise as much traditional financing as expected, which would typically be used to repay the bridging loan. This is because when you also factor in the potential reduction in house prices overall, there could be a huge shortfall. “