If you need to borrow money for a short time, a bridging loan may be helpful. If you want to buy a new house before selling your old one, it essentially “bridges the gap”. If you purchase a house at auction and need the money right away but haven’t yet sold your current property, a bridging loan can also be used. Short-term cash flow is available through bridging loans. A homeowner might utilize a bridge loan, for instance, to buy a new house before selling their old one. However, compared to conventional loans, bridge loans often have higher interest rates. Additionally, you will need to make payments on both loans if you have a mortgage and are waiting to sell your house.
The two types of bridging loans:
Bridging loans come in two varieties: open and closed.
A closed bridging loan has a deadline by which it must be repaid. If you have exchanged contracts but are awaiting the completion of your property sale, you will typically be issued a closed loan, which has a defined repayment deadline.
Open bridging loans have no set due date and are repayable at any time but usually occurs within a year. Regardless of the type of loan you take out, the lender will look for evidence of a clear repayment plan, such as leveraging the proceeds from the sale of a home as equity or getting a mortgage.
They’ll also demand documentation of the new property you’re buying, the sum you intend to pay for it, and, if applicable, evidence of your efforts to sell your current property.
You’ll also want to have a fallback strategy in place in case your repayment plan doesn’t work.
First charge and second charge bridging loans:
Your property will be “charged” when you take out a bridging loan. This is a contract that specifies which lenders will be paid back first if you are unable to make your loan payments.
With both a first charge and a second charge loan, if you are unable to make payments on a bridge loan your property will be used as security.
The bridging loan would typically be a second charge loan if you still owe money on your home. This means that if you defaulted on your payments and your house was sold to settle your debts, the mortgage would be paid off first.
How we can help:
Our mortgage experts are more than happy to help with any further questions you may have about bridging loans and can assist you with finding a suitable deal. Feel free to contact us on 020 8715 7267, and we’ll handle the rest!