Bridging Loans Explained
A bridging loan could be the solution to help you move home faster and beat the intense buying competition on the property market.
What is a Bridging Loan?
A bridging loan is a type of short-term finance which is used to 'bridge the gap' between two financial transactions. A bridging loan may be utilised in a situation where you are buying a new property but have not yet sold your previous home. A bridging loan covers the cost of your new property purchase until the final sale of your existing property is complete. Bridging loans often serve as the ideal solution to be able to move home faster during this time of high market demand, which is resulting in intense competition and properties being snapped up quick!
What are the Terms of a Bridging Loan?
It is important to note that a bridging loan is only a temporary fix - this type of loan usually has a term of less than 12 months. Bridging loans are highly advantageous, as they serve as a useful and flexible option to provide you with access to finance easily and quickly. However, they can be expensive and aren't always the right solution for everyone. It is important to seek professional mortgage advice. Your mortgage broker will compare different lenders to help you find the best deal.
When is a Bridging Loan Used?
Bridging loans are often used as a temporary solution to meet buyers funding needs. They are commonly used for investment property purchases and make a useful option for chain breaks.
Bridging loans also prove useful to homeowners of high value homes who are considering downsizing and intend to release substantial funds. Older homeowners that are looking to move often face the problem of having no way to unlock the wealth they have accumulated in their property. Bridging loans help to meet the gap to allow them to buy their retirement property before the sale of their current home has gone through.
How Much Can I Borrow?
Bridging loans range from £25,000 up to £5 million, with terms of as little as a few months to a few years. As this type of loan is considered a higher-risk form of lending, they will often have a higher interest rate in comparison to a standard mortgage.
The exact interest rate will be dependent on a number of factors, including:
- The value of the property
- The loan-to-value ratio
- Your personal circumstances
Additionally, in order to be eligible for a bridging loan you will be required to meet certain criteria. Most lenders will require you to have sufficient equity in your property, a good credit history, and you will also need to prove you have an attainable exit strategy in place in order to repay the loan.
Is a Bridging Loan the Right Option for You?
At Transparent Mortgage Services we are here to offer professional advice from our experienced team of mortgage advisors about how bridging loans work. To discuss your requirements, apply for a bridging loan, or to find out more, call us on 01424 444 597 or email us on info@tms-fs.co.uk.
