Bridging Loans explained - Apply for a Bridging Loan

A bridging loan is typically used when an individual is unable to pay a mortgage at a particular time. It is a temporary solution to mortgage arrears and is usually accessed to alleviate cash flow problems until a source of finance can be found. A bridging loan is not just suitable for those hoping to pay back a residential mortgage, as it can also be used to extend property or to buy a business.

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Bridging Loans Explained

If you need some cash up front in order to HYPERLINK "https://www.propertyadviceblog.com/buy-to-let-mortgages" find a mortgage for a bigger property, a bridging loan could be the right solution. For example, you’ve found your dream home but your first property is still on the market, so you need some money now to make a deposit. A bridging loan can also be used to buy a property at auction. In this case you might need a deposit quickly so that the mortgage lender can organise the payments for your new property.

Isn’t a Bridging Loan just another name for a Short Mortgage?

A bridging loan is more expensive than a normal mortgage and should only be used by those who can pay back quickly. They can be a great solution to find a mortgage speedily by providing the required deposit, but at the same time they are risky if you are unable to find the borrowed cash within the given time frame.

How does a bridging loan work?

The amount of money you can get from a bridging loan depends on the value of the properties involved and any existing mortgage. Speak to your individual lender to find out about their bridging loan policies and discover if you can afford to find a mortgage before your existing property is sold.

Which organisations deal with bridging loans?

Although you may find that your high street bank offers bridging loans, it would be wise to shop around and visit a number of specialist bridging loan lenders before deciding. A specialist will have the knowledge and resources to deal with your request quickly, which can make a huge difference when it comes to the property market. In general if you want to find a mortgage, extend a property or buy a business, a bridging loan can be a quick fix solution, providing ready cash within 10 days.

Can I use a bridging loan if the sale of my house falls through?

You can also apply for a bridging loan if the sale of your house falls through but you want to buy another property. Bridging loans however are expensive and are only a short-term solution. In today’s property market selling a house could take time so you may wish to consider changing your previous property to a to-let mortgage, or a quick-sell or auction would allow you to sell your property quickly and raise the money you need to buy your next property. You would also probably find that a second mortgage with no early repayment fees would work out cheaper than using a bridging loan.

Are there different types of bridging loans?

There are two types of bridging loans, ‘closed’ bridge loans and ‘open’ bridge loans. Closed are available to people who have already exchange contracts on the sale of their current house, while open bridge is where a sale has not been closed but where there it is likely that a sale will take place in the near future: your house must already be on the market. Most mortgage lenders will only allow 12-month open bridge loans, after which time the loan will have to be renegotiated.

How much does a bridging loan cost?

Bridging loans are more expensive than standard mortgages because they are short term. Usually they charge 2-2.5% in addition to the Bank of England’s base rate as well as an arrangement fee around 1% of the total loan. Beware of lower or no arrangement fees as this may be indicative of high interest rates, whether or not you opt for a lower arrangement fee or lower interest rate will depend on how long you envisage to use the loan, if you only intend to borrow for a short time and are confident you can pay off your debt after this time then a lower arrangement fee is more sensible.

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