Expert financial advice:
bridging

Bridging loans

Bridging loans are a short-term solution to temporary funding gaps. They can be used to facilitate buying a property that you wouldn’t be able to purchase otherwise. Bridging loans tend to be more expensive than other types of loans as they have a high interest rate, on the assumption that you will quickly pay off your debt.


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What is bridging?

Bridging loans are designed to help people purchase houses, for example in the case of needing to purchase before they’ve sold their current home, also people selling on quickly after renovating, or buying a property at auction. They give short-term money with high interest.

There is however some slight risk to consider. Banks and building societies are less likely to lend after the financial crisis which has meant that there are now more bridging lenders than ever. They charge high rates, plus some hefty admin fees. It’s important that you are extremely aware and careful so you don’t get ripped off. Costs can be up to 1.5% a month which adds up to a huge 18% a year.

Bridging loans are aimed at landlords and amateur property developers. This includes those who need a mortgage fast after purchasing at an auction. They are also sometimes used by the wealthy or asset-rich who want straightforward lending on residential properties.


Where can you get bridging loans?

There are many types and sizes of bridging lenders, from individual lenders to larger, professional outfits regulated by City watchdog, the FCA. We would advise using a FCA regulated broker as they will only recommend taking out a bridge loan if it’s the best option for your unique situation.

Bridging loans


Varying interest

As bridging loans are only meant to be taken out for a few months, providers tend to charge monthly interest rates. This means just a small difference in your rate can have a huge impact on how much your loan costs.

There are three ways how interest can be charged. Monthly is when interest is paid each month and is not added to your loan. Deferred or rolled up interest means you pay it all at the end of the term. The third type is retained, where you borrow the interest for a set amount of time and pay at the end of the loan period.

Potential issues

Due to the banks taking longer to process applications for larger home loans, there has been an increase in people turning to bridging loans. While they can be highly effective when used for reasons like property investment, buy-to-let and development, they can also cause trouble for lenders. It’s important to recognise that bridging loans are not an easy alternative to mainstream lending.

Some potential issues with taking out a bridging loan include being rejected for a mortgage later down the line and raking up hefty additional legal and administration fees. It’s important to tread carefully when it comes to bridging loans and make sure your situation is suitable to apply for a bridging loan.

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FAQ's

Everything you need to know about bridging

Applying for a bridging loan is a relatively speedy process. You can apply online and find out if you’ve been successful within 24 hours.

Once approved, it typically could be in your account within 2 weeks. Sometimes you can pay a little extra to speed up processing.

Bridging loans are secured loans, which mean you need to supply an asset to use as security. Some lenders allow land as security for a loan, instead of a home.

Some lenders will still consider your bridging loan application despite bad credit. Be prepared for your eventual loan to possibly be more expensive.

If you have a mortgage or current loan on your house then you need a 2nd charge loan, otherwise you are fine to look at 1st charge loans.

With a closed loan, there is a set exit or repayment date - for example when a property sale is complete. An open loan means a borrow can only guess how long the loan will be required for.

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