Bridging Loans
Bridging loans can be incredibly useful for a number of reasons, such as needing to break the chain in a house purchase, looking to buy a property that is not currently mortgageable or looking to downsize but want to buy before you sell. Bridging finance can be a flexible option for all of these situations but of course comes with the usual pros and cons and should be carefully considered.
What is a Bridging Loan?
Bridging loans are a way of borrowing money in the short term – they ‘bridge the gap’ and, unlike mortgages, they can be arranged quickly if speed is important.
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However, bridging loans are a secured loan. This means that you have to secure an asset against them, usually property. As there is a risk of losing your asset and paying a higher rate of interest, bridging loans are often viewed as a last resort but, used correctly, they can also overcome many short term funding issues successfully.
What could I use a bridging loan for?
We’ve supported a number of clients with bridging loans over the years, below are a flavour of what they can be used for:
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Sourcing funds for buying a property at auction
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Purchasing a property that is currently unmortgagable, if you’re looking to make it habitable so that a traditional mortgage can be arranged
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Downsizing. You can take out a bridging loan to fund the new purchase, giving you longer to sell your current home. Reducing the stress of buying and selling at the same time.
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Raising funds for renovations before selling the property on.
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Ensuring you’re able to complete on a purchase if the chain collapses
What are the pros and cons of bridging loans?
Our advisers will always thoroughly explore your options before making their recommendations, ensuring that they recommend the most suitable loan for your circumstances. But we’ll quickly cover some of the pros and cons of bridging finance below.
Pros
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Speed – you can quickly borrow money, which could keep your transaction on track
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Flexibility – repayments may have an element of flexibility to fit with your plans
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Extra options – it may be possible to secure lending on properties/projects which traditionally mortgage lenders would not touch
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Not directly linked to income – a number of our clients have non-standard incomes so this option can be appealing
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The ability to have interest charges added to the loan, rather than you paying interest monthly.
Cons
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The loan is secured against an asset, therefore if you cannot repay the bridging loan you may risk losing the asset.
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You pay for the convenience of fast, flexible finance with a higher interest rate.
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Bridging loans often come with a range of fees which add to their expense. This can include arrangement fees, valuation fees and conveyancing fees.
