What Is A Bridging Loan?
Bridging loans are short term, high rate interest loans that help people complete the purchase of a property before selling their existing home.
Bridging loans work by bridging the gap between the sale and completion dated in a chain and can help someone planning on selling quickly.
Bridging loans are most commonly used by landlords, homeowners, and property developers to buy a property, initiate property development, Invest for buy to let purposes, and pay tax bills.
What Are Bridging Loans Used For?
- Buying a property before the sale of yours goes through
- Property development
- Buy to let investment, often at auctions where you need a high deposit to secure a property at short notice
- Business ventures
- Paying a tax bill
- Divorce Settlement
Types Of Bridging Loans
- Closed Bridging Loan – This option requires you to know exactly how you’ll be paying off the loan. This means you’ll be able to tell the lender what funds you’ll be using to pay off the loan from the outset – this is often called an ‘exit plan’. Closed loans are usually settled within a few months.
- Open Bridge Loan – This option usually doesn’t require an ‘exit plan’ and is often used as a means to get funds for an urgent transaction. As you wont have to provide a detailed plan of how you’ll be settling the debt, open bridge loans can be a time-effective solution. You usually have up to a year to repay your debt, but this may vary from lender to lender.
Open Bridging Loans are usually more expensive than closed bridging loans because they offer more flexibility.
What Are The Charges for Bridging Loans?
When you apply for a bridging loan, the lender adds a ‘charge’ to the property you’re using as security. Charges determine the priority of debts if you’re unable to repay your loan:
- First charge loans – where the loan is the first or only borrowing secured against your property e.g. mortgages
- Second charge loans – where you take out a loan on an asset, upon which you already have a loan or mortgage
Disadvantages Of A Bridging Loan
- The loan is secured against your property, so you risk losing ownership if you cant meet the repayments
- High interest rates may come with the loan, this is because you pay for the flexibility and swift payment
- Bridging loans can be expensive as they charge interest and a range of fees
Advantages Of A Bridging Loan
- You’ll receive your money quickly
- You can borrow a large amount of money
- Flexible borrowing might apply
Am I Eligible For A Bridging Loan?
- Loan providers usually require property as security and depending on the loans and provider, you may need to own more than one property to qualify
- You may need to provide proof of income but, as the loan interest isn’t paid on a monthly basis, this isn’t always required
- You may need a business plan, if there’s a commercial aspect to your plans
- If you’re planning to develop property, you may need to provide your track record in property
How Do I Apply For A Bridging Loan?
We have a fantastic panel of lenders here at Saffron Financial, if you contact us directly to discuss this giving us the opportunity to gain a full understanding of your financial situation, enabling us to offer the perfect finance solution to suit your needs, also offering a reliable and honest service when supporting you through your finance journey!