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Home » Competing in a Hot Market: Why Bridging Finance Matters in Scottish Housing

Competing in a Hot Market: Why Bridging Finance Matters in Scottish Housing

Bridging finance has become an increasingly popular option for property buyers in Scotland looking to secure a new home before selling their existing property. Bridging loans provide short-term financing that enables borrowers to complete on a new purchase before they have the funds from selling their current home. This type of finance can be invaluable in Scotland’s competitive housing market, where buyers often need to act quickly on a new property before finalising the sale of their old one.

The main appeal of bridging finance is that it can speed up the moving process and prevent property chains from breaking down. In a challenging market, bridging loans allow buyers to compete on a cash offer rather than being dependent on the sale of their existing home going through in time. This removes one of the main risks in buying a new home before selling the old one. Click here for more information.

Bridging loans are often taken out for periods of just weeks or months to act as a temporary finance solution. Borrowers will then repay the bridging loan once their old property sale goes through. While bridging finance can carry higher interest rates due to its short-term nature, it enables borrowers to secure their desired property quickly.

The Scottish housing market has some distinct trends that make bridging finance particularly useful. The market north of the border differs from the rest of the UK, with a higher percentage of cash buyers and buyers less dependent on mortgage finance. With many Scottish buyers willing and able to move quickly, bridging loans can give some borrowers a competitive advantage.

Scotland also has a proportionately larger rural housing market, where properties can take longer to sell due to lower demand. Bridging finance allows buyers looking to move out of these rural areas to purchase before achieving a sale locally. It removes the risk of a long wait for the sale of a remote property holding up a move.

First-time buyers in Scotland are major users of bridging finance, often assisted by family members using property or savings as security. With first-time buyers typically needing to compete against stronger cash offers from existing homeowners, bridging loans allow new entrants to the property market to make competitive bids on their desired starter home.

The short-term lending market has grown considerably since the 2008 financial crisis, largely from specialist bridging lenders rather than high street banks. This bridging finance sector is now providing loans assisted by brokers and advisers who can match applicants’ situations with lenders’ criteria.

While most bridging loans are for new property purchases, borrowers can also use them to raise capital on existing properties for home improvements, business investment or other cash needs. The loans are secured on the property, with interest rolled up until repayment when existing property sales conclude.

Critics argue bridging loans can encourage buyers to take on too much debt and overpay in competitive bidding situations. However, advocates say bridging finance sparks activity in the housing market and enables more transactions to complete.

With strong demand but limited housing stock in many areas of Scotland, bridging loans look set to remain a useful tool for buyers. Specialist lenders can carry out affordability checks and ensure applicants’ exit route via the sale of old properties. When used responsibly, bridging finance enables Scotland’s housing market to function more dynamically.