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.