Bridging Loans for Houses and Flats

What is a Bridging Loan?

  • As the name implies a bridging loan is only granted to ‘bridge’ the gap until money comes in from another source. This might be from the sale of another property or an advance on a new mortgage.
  • A bridge is a temporary arrangement used to provide finance when you are purchasing a house
  • You have to repay the loan as soon as the other money is available.
  • You pay interest on the bridging loan as you go or in one lump with the repayment.
  • Bridging loans are normally for a maximum period of 12 months but may be subject to renegotiation.

Benefits of a Bridging Loan

  • You do not have to wait until the sale of your current property is not complete and the cash received before you pay for your new property.
  • Bridging Loans can be taken for cash down-payment for the new property before cash proceeds is received from the sale of the existing property.
  • A bridging loan can be used for the payment of stamp duty and legal fees as well.
  • Bridging loans are often used by purchasers of a property who need funds for a limited period of time.
  • Bridge loans can be useful for buying a property at Auction.
  • Bridging finance can also be used when purchasing a business or other assets.

Issues with Bridging Loans

  • If you are planning an imminent property purchase but have a problem with your own sale there are only two financing options – take on another mortgage if you can get one or a bridging loan. Both leave the borrower paying off two loans at once.
  • Experts say bridging loans should not be used as a way of simply trying to beat property chain problems, be careful about taking on two mortgage-sized debts.
  • You do not want to be left with a bridging loan if the sale falls through for any reason.
  • If you are struggling to sell your property but have already found your new dream home, then a bridging loan is almost certainly not the answer.
  • Bridge loans are available from banks and building societies but are typically more expensive than conventional financing to compensate for the additional risk of the loan.
  • Bridge financing generally requires that you pledge some sort of collateral or security against the loan.