Term loans usually last between one and five years. They are usually taken out on an interest-only basis, with rates of anywhere between 2.49 per cent and 6 per cent a year. This gives clients more flexibility and more medium-term planning at cheaper rates. The benefit for the lender is that it is a fixed product which runs for a longer period than a bridging loan. From a business perspective, the lender will have a cleaner loan book as the terms would be fixed for a period of time with no chance of early repayments, unlike bridging, where the client is able to redeem the loan at any point.

With the uncertainty over Brexit and any increase of Bank of England interest rates, you might see more lenders move towards the term loan option as it benefits the lender and the client. Borrowers will want to secure their income and be able to budget for further down the line while lenders get the security over their loan book with a secured revenue stream. 

However, if a client is on a short-term loan and can get out of it if the rates go up, they will move to something more secure. I think we will see a flight from bridging and short-term finance to longer-term finance should interest rates start to increase.

Michael Perry is a bridging finance broker of Enness Bridging Finance

Key points

The risk of bridging finance lies within the exit strategy and speed of the transaction

The credit crunch restricted the flow of credit because all of the main lenders pulled back from property lending

Bridging loans are suitable for property developers and landlords