Bridging Loans Explained

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Bridging Loans Explained

Bridging loans are usually seen as a temporary way to alleviate cash problems when outlaying large amounts of money and waiting for other sources of finance.

Bridging loans can come in handy in all sorts of situations, whether buying a property, extending a property or buying a business.

What is a bridging loan?

Bridging loans refer to a type of loan taken out to solve temporary cash problems. For instance, if you own a house but are upsizing to a more expensive property, a bridging loan could cover you to buy the house you want before you have sold the first one.

A bridging loan is a loan usually taken out as an immediate source of a large sum of money, often to cover the costs of purchasing a property. Bridging loans are usually repaid within half a year of being taken out, though it is often less.

Similarly, if you are buying a property at auction, you may need to put down a deposit or pay the balance on a house quickly - before a mortgage lender can arrange finance.

Depending on the lender, a bridging loan can often be taken out by people who usually find it more difficult to get loans and mortgages. This includes people with bad credit ratings and the self employed.

How quick do I get a decision?

Normally a bridging loan can be arranged and completed within a couple of days with a decision on a loan made within a couple of hours of making its request.

Is a bridging loan like a very short mortgage?

Not quite. Because of the extra risks, bridging loans will be more expensive, and they should only be considered as an option if you think you can repay relatively quickly. The key for bridging loans is to move fast: a short-term bridging loan can be an ideal financial solution.

How do bridging loans work?

Usually, bridging loans are based on the value of the properties involved less any existing mortgages. A maximum of £500,000 is usually fixed, although some lenders will go higher.

How much do bridging loans cost?

Bridging loans are generally set at a fixed interest rate, usually a percentage of the overall value per month. Usually with this type of loan it is necessary to move quickly, and borrowers don't shop around for the best rate. However, in theory variations in rates will be available from different lenders. Like normal mortgages, a bad credit history will mean you have to pay more.

Getting a bridging loan for a property auction

When buying a house from a property auction, be it to occupy or rent out, it is necessary to complete on the deal within 28 days. Some companies offer a specific service to cover this, providing non-status loans especially for auction transactions. These companies often have no minimum loan period and no early redemption penalties, but interest rates can be higher.

Where do I get a bridging loan?

Some high-street banks offer bridging loans, although it can be faster to choose a specialist bridging loan lender. They can deal with the request quickly, often within a week or so, depending on other aspects of the process.

The point of bridging finance is its rapidity. The entire process should take no longer than 10 days, but it could even be quicker if there are no problems at any stage.

How do I get a bridging loan?

It is important to have the property your loan will be secured against valued quickly. The lender will conduct this valuation, and as soon as it has been paid for, the process will begin. As the borrower, it is up to you to convince your solicitor or conveyancer to carry out all the conveyancing tasks as fast as possible (for more information please see our conveyancing section).

For more information about bridging loans and to get a bridging loans quote, please use our Mortgage Enquiry Form and one of our experts will contact you for further assistance.

Alternatively, you can give us a call on 0845 108 0505, whether you are seeking a residential bridging loan or a commercial bridging loan.