Bridging loans are a means to temporarily ‘bridge the gap’ between the purchase of property and securing funds, such as from a mortgage or the sale of another property.
They are a short term secured loan for between 12 and 24 months depending.
For this reason, it may not be for everyone.
So, when is a bridge loan a good idea?
Bridging loans can be a good idea if:
- You want to buy a property quickly but haven’t yet sold your current property.
- Your buyer has dropped out, but you don’t want your new property purchase to fall through.
- The property you want to purchase is currently inhabitable or un-mortgageable i.e. a property split into flats being converted back.
- You’re planning development or a self-build.
- You’re buying at auction.
- You need short term funds without the monthly interest payments.
How do bridging loans work?
Bridging loans are quick, flexible products and perfect for those who are on a restricted timeframe. They’re also available on a range of properties.
Things you need to know:
- You’ll need a larger deposit of around 25%.
- You must provide evidence of how you intend to pay back the loan, i.e. a repayment vehicle such as the sale of a property or re-mortgaging.
- Due to the high risk involved and short term, interest rates tend to be higher than on a mortgage.
- There are no monthly payments unless you choose to make them. You’ll pay a bridging loan back at the end of your terms. However, as well as paying the initial loan you’ll pay the monthly interest that rolls up which will have interest charged to it.
If a bridging loan is something you are considering we’d be happy to put you in touch with a specialist advisor who can walk you through your options.