A bridging loan can be useful if you need to borrow money for a short-period. The most common use of these loans is to help fund a new house purchase while you’re waiting for your existing property to sell.
Bridging loans can also be used to help you buy at auction – where you’ll need to put down a deposit as soon as the hammer comes down.
Bridging loans tend to take between seven to 10 working days to arrange, which is much quicker than the average residential mortgage.
How does a bridging loan work?
There are two types of bridging loan, closed and open. With a closed loan there is a fixed repayment date – you will normally be given this kind of loan if you have exchanged contracts but are waiting for a property sale to complete. With an open loan there is no fixed repayment date, but you will normally be expected to pay it off within one year.
Whichever kind of loan you take out, the lender will want to see evidence of a clear repayment strategy; such as using equity from a property sale or taking out a mortgage.
They will also want to see evidence of the new property you are purchasing and the price you plan to pay for it – as well as proof of what you are doing to sell your current property if relevant. You should also have a back-up plan in place for if your repayment strategy fails – for example, if a planned sale falls through.
Bridging loans are quite expensive. Typically, there’s a set-up fee of around 1-3% of the loan, and monthly interest of around 1–2.5% – so it advisable to only take one out if you are confident that you won’t need it for a long period of time.
Consider Let to buy
If you want to move but can’t sell, you could also consider a let to buy arrangement, as this will give you some breathing space to sell the property when you’re ready. You can do this by remortgaging your current home onto a buy to let deal and using the equity released to buy a new property.
Get impartial mortgage advice
Whatever the reason you need access to finance quickly, one of our advisers will be happy to discuss with you whether a bridging loan is the right solution – or if another option might suit you better.
You can speak to a Which? mortgage adviser by calling us on 0117 981 7787 – or request a call back. Our advisers look at every mortgage from every available lender and because they’re paid a salary –not a sales commission – you can have confidence that you’ll receive truly impartial advice.