Bridging Finance
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A bridging loan is a short-term loan which can bridge the gap between the purchase price of your new home and maintaining your existing mortgage until your existing home is sold. It allows you to access the equity in your existing home as security for the deposit towards your new dream home.
What is a bridging Loan?
A bridging loan is a type of short term property backed finance. They are often used to fund you for a period of time whilst allowing you to either refinance to longer term debt or sell a property. Finding a bridging loan can be difficult, but leading online comparison sites can help you compare types of loan and the best loan for you and your needs.
Bridging loans are usually offered for between 1-18 months, with the loan repayable in full at the end of the term. Unlike other forms of borrowing the monthly interest is often rolled into the loan, meaning there are no repayments to make during the term of the loan.
The application process is usually far simpler than for other types of borrowing and applications can complete very quickly, usually in 5-14 days.
Bridging finance can be offered against almost any property or land and can be used for a number of different reasons. The main uses are:
- Purchasing a property quickly – such as auction purchases
- Buying uninhabitable property
- Funding property restoration or conversion work
- Repossession prevention
- Buying property under market value
Differences between a standard mortgage and bridging loan
Bridging is very short-term in comparison to a mortgage. Mortgages are usually taken out on 25-35 year terms. Bridging loans are generally offered for one year or less.
Bridging also takes less time to obtain than a mortgage. A mortgage is a lot more intricate and can take weeks if not months for funds to be released. Bridging can take as little as 48 hours once an application has been approved!
Interest rates for bridging are higher than mortgage interest rates. Most mortgages can be obtained with rates between 3-5%, even lower with higher deposits and great credit. Bridging finance tends to start at a whopping 8% with rates on average being between 10-20%!
On a positive note, bridging lenders won’t assess income and generally aren’t interested in rental income if it involves buy to let.
Bridging finance is also available on any type of property, whereas mortgage lenders tend to lend on specific properties such as traditional brick-built and habitable homes.
For this reason, bridging is popular with auction buyers to secure rundown properties that won’t qualify for mortgages.
Mortgages are usually repaid on a monthly basis. Bridging loans can be ‘rolled up’ and repaid as a lump sum once the term expires. This can be practical for when you’re cash-strapped and are awaiting funds either from a new mortgage or a property sale.
