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Bridging Loans

1: Bridging Loans Short-term loan used to provide funding for property. www.loan-bridging.co.uk

You may well find yourself in the process of moving house and you’ve found the right property but are yet to sell your own, in these circumstances a bridging loan could indeed be the answer. It gives you an agreed amount to assist you to bridge the gap between the stages of selling and buying your property. There are two types of Bridging loan available:

Open Bridging loan
Available when you are yet to finalise the terms by which your own house is being sold, but are going ahead with the purchase of the one, which you are buying.

Closed Bridging loan
Available when you have agreed the terms on the property that you are intending to buy and the one that you are selling, but there is a delay in moving between the two.

A bridging loan can either be for a smaller sum just to pay for the deposit on the new property, because your lender is permitting you to run two mortgages at once, or for a larger amount; a figure that will repay your existing mortgage, and also pay for the deposit on the new property. Bridging loans are for the most part designed for the purchase of residential property, but other purposes will be considered provided the security offered is a first charge on residential property.

The amount borrowed with a bridging loan is viewed as only a temporary loan until your existing property is finally sold, the lender anticipates that the bridging loan will be paid back with the sale proceeds, and expects this to be within 6-12 months of taking the loan out. During this time you may not have to make payments to the loan, as often lenders are happy to add the interest you accumulate during this waiting period to the balance you have borrowed, you then repay the original balance and the interest in one go once your property is sold.

It pays to be aware of the fact that the banks charge a very high rate of interest for bridging loans, they also make additional charges to cover all the paperwork, including taking a charge on the properties involved etc. If you find yourself in need of a bridging loan there are very few alternatives available. A good suggestion is to try and reduce the amount you borrow from the bank by taking out as large a mortgage that you can obtain on the new property bearing in mind your incomes.