Bridging finance interest rates unlikely to rise
Following the Bank of England’s interest rate rise at the beginning of August, there was speculation that further rate rises would follow. The bridging finance market is less affected by Bank of England rate rises than other forms of lending and few lenders have raised their rates in 2018.
Bridging loans are short-term finance. After a loan interest rate has been fixed, lenders can budget for loan repayments without expecting that the total amount repaid will vary from that quoted when they took out the loan.
Many bridging finance lenders are privately funded and are not affected by Bank of England rates. Private funders can choose to ignore any Bank of England rate rises.
There is fierce competition between alternative bridging finance lenders and this has kept interest rates low. Unlike other loans such as mortgages, bridging interest rates are not fixed. Each loan application is assessed for risk and interest rates fixed according to the risk assessment. Some lenders specialise in particular loan types, such as auction and building development bridging loans. A bridging finance broker can find the best deals for a particular deal at reasonable interest rates.
Many bridging loans are used until a long-term mortgage application has been completed. These long-term loans are more likely to be affected by interest rate rises than the bridging loans.
As interest rates continue to increase, bridging finance rates could rise, but rises will probably be small.