Complete That Deal Fast With A Bridging Loan
What is a bridging loan?
Government figures from the Office of the Deputy Prime Minister in 2006 showed that more than £1m worth of home sales fall through every day in Britain. One of the main reason things go wrong is because of a hold up in the property chain, a sale may have fallen through leaving someone about to exchange contracts on a property higher up the chain but with no sale on their own home.
If you are the buyer who finds yourself stuck there are is a way around the problem, taking out a bridging loan. A bridging loan is a good option if you know your home sale will eventually go through - for example if there were some minor problems in a survey that can be sorted out quickly. A bridging loan is a short-term loan designed to help ease such glitches in the home-buying process and allow you to borrow a large sum of money over a short period but at higher interest rates.
Lenders of such loans will normally use your home as security rather than looking at earnings, but they tend to offer lower loan-to-value rates than a mortgage.
What bridging loan is best for you?
There are also two types of bridging loan. Closed bridging is when the loan is for a set period - this can be useful if the completion date for your old property is set. Open bridging is open-ended and will normally charge you a higher rate of interest. Fees will typically take the place of a percentage of the sum borrowed and loans can often be organised within two weeks.
A bridging loan can be useful to finance the purchase of one home before the sale of another, but be careful what kind of loan you opt for. Bridging loans are sometimes advertised as being useful for buying a home needing renovation before you can move in, purchasing properties at auction or temporarily financing a home abroad.
What to do when you get your bridging loan
Bear in mind that a bridging loan is a short term loan, and charges more interest than a normal mortgage. Before you choose to take out a short term loan make sure you have considered your other options, it may be worth renting for a while until you find another property or delaying your property purchase until you know you have long-term finance in place. Remember to shop around for the best deal and check how much fees or redemption charges will be. Avoid linking your bridging loan with subsequent mortgage deals and aim for a maximum amount of time, say six months, to pay it back.
