Bridging loan is an ideal option when you need to buy more time to arrange a standard mortgage. In essence, bridging loan is a form of financing, primarily used in property buying, that allows you to borrow money on a short-term basis. It enables you to access capital quickly, in some cases you can get a principle offer with you on the very same day.
Bridging loans differs from a standard mortgage in two ways:
- Shorter term
Bridging loans are meant only to ‘bridge’ the gap until the time you secure longer term finance, for example, your standard mortgage. Therefore, banks will typically allow a maximum duration of up to 36 months before the money has to be repaid.
- Quicker application process
Bridging loans can have a far quicker application process than a standard mortgage, allowing you to take advantage of a property bargain.
Despite these key differences you should be aware that a bridging loan is still a mortgage and if you fail to keep up repayments, the property could be repossessed. You need to remember, that repossession process for a bridging loan can be much swifter than repossession on a regular mortgage.
You should also note that bridging finance costs roughly the same amount to arrange as a regular mortgage.
The term can be from one day to a year or in some cases even more, depending on the provider. Typically, you would have the loan for a few months.
As you might expect, it’s an expensive option, though competition has brought the costs down a little. The borrower usually pays monthly interest. Rates typically start at 0.75% a month, rising to 1%-1.5%. While companies have their published rates, these are often more negotiable than standard mortgage rates.
A lot will depend on your “loan-to-value” (how much you are borrowing as a proportion of the property’s value) and whether or not you have exchanged contracts.
The additional fees can vary greatly. Typical example will be when you pay a 1-2% arrangement fee, plus a £500 administration fee and legal fees (minimum £500) for all residential first-charge lending.
You will also need to pay attention to the exit fees – nowadays most bridging loan companies don’t impose them, but some still do.
To discuss your requirements, please contact our specialists or call us on +44 (0)203 490 41 21.