What are bridging loans designed for?

Generally speaking, bridging loans are short term loans at high interest rates which are relatively easy to access. These loans are designed to enable borrowers to access funds during a financially uncertain time, such as between house moves. If your money is tied up in an old property, this may be preventing you from financing a new purchase. This is one example as to where bridging loans may help.

Loans for buying a property

Residential buyers may feel they are trapped if their property is taking a long time to sell. This can make them feel that they cannot commit to a new purchase without the money to back it up.

Bridging loans are fast loans that can be accessed quickly and easily, providing a financial buffer and giving borrowers the money they need to purchase their next property, even though their old property is still unsold.

Using bridging loans for house purchase reasons can represent a practical solution to buyers who are in need of some fast and reliable funds. These loans can be invaluable for a buyer who would otherwise need to wait until the money is released from their old property, enabling them to purchase a new property before someone else snaps it up. With a bridging loan, the cash can be ready to be used when needed.

As the housing market can move so fast, it can be difficult to secure a good deal on a new purchase when funds are tied up in a slow property chain. This can mean missing out on a dream property as you wait for your old property to sell or a new mortgage to be completed. This is a financial gap that needs to be filled and, thankfully, bridging loans are designed for precisely this sort of purpose. They are an ideal short-term solution when you know that your own funds will soon be freed up to repay the loan.

Loans for between mortgages

Sometimes during the house buying process, a mortgage can take much longer to secure than anticipated. It is always advised that you should get mortgage approval before taking out a bridging loan. However, it can be beneficial to use a bridging loan if your intended purchase is at an exceptionally good price and your financial profile means that your chances of acceptance for a mortgage are very strong.

A short-term bridging loan thus enables you to complete the purchase while waiting for your mortgage to be completed. Given that bridging loans are relatively expensive, with higher interest rates, it is important to do your calculations and determine whether any potential savings associated with an attractive property purchase price will offset the total cost of the bridging finance.

Auction properties

Another time at which clients approach us for rapid access to funds is when they are bidding for a house via an auction. Whether the property needs work doing on it, or the property is in a perfect state and ready to move into right away, in some situations, a bridging loan can be the only viable means of funding the deposit required on the purchase.

Bidders at auctions can sometimes need to pay a 10% deposit on a property upfront, with the remainder of the price due within the month. If you don’t have the money the penalties can be severe. A fast bridging loan can help you secure the auction property straight away, while you wait for your mortgage to be approved or the sale of an existing property to complete in order to release funds. As with any other scenario in which you feel you may require a bridging loan, do look at the overall picture and calculate whether the savings you will make by buying at auction merit the cost of the bridging finance.

Important considerations

There are plenty of situations in which a bridging loan would not be appropriate. Using bridging loans for house purchase reasons is not a good idea if you don’t have a cast iron plan in place to repay the loan. It is also a risky proposition if you don’t have a mortgage in place or are not absolutely certain that your mortgage application will be approved. The last thing you should ever do is to take on a high-interest bridging loan without a sure-fire means of repaying it.

You should also think twice about taking out a bridging loan if you have not done your homework and researched the interest rates, repayment structure and any fees applied to the loan. It is always essential to read through the fine print of any loan agreement to make sure that you know exactly what is on offer and what is expected of you in terms of repayments.

Because we play by the book we want to tell you that...

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.

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