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Bridging Loans
MORTGAGE FOX - LAST UPDATED 14 AUGUST
Mortgage Fox – Smart, independent, unbiased advice on UK mortgages and home buying.
Bridging Loans
Bridging Loans are often regarded as a last resort for desperate house buyers. They are very expensive.
A Bridging Loan is a short-term secured loan and is useful for those who have found a new property but are struggling to sell their existing property. The loan will tide you over until the property is sold.
There are two types of Bridging Loans- Open and Closed.
- An Open Bridging Loan- Is when you are buying a property and the sale of your existing property has fallen through or has not yet completed. This type of loan is open-ended.
- A Closed Bridging Loan- Is only available to a buyer who has exchanged contracts but there is a delay in receipt of the funds to purchase the new property. This is because it is unusual for a sale to fall through at this stage. A closed loan is for a set period.
Other reasons to apply for a Bridging Loan are:-
To fund the purchase of property bought at auction.
Buying one property before you have completion on the sale of your existing property.
Funding the purchase of a property abroad.
Funding for the purchase of an unmortgagable property until completion of the repairs and availability of mortgage.
Funding for a property in need of renovation with a view to selling on completion of the improvements.-Funding for the repairs may also be available
Can be used if your chain breaks down.
The loans are always short term usually 3 or 6 months although some lenders offer 12 months .The main providers of bridging loans are specialist lenders and high street banks. However not all banks offer bridging loans. Our advisors at Mortgage Fox will search out the best loan for you. Click here.
Arrangement fees
Most lenders will charge an arrangement fee. Some charge a higher rate of interest with a lower arrangement fee. Whilst others will charge a lower interest rate and a higher arrangement fee. The loans are arranged very quickly usually in a matter of days.
Typically arrangement fees for closed bridging would be 0.5% of the loan and 1% for an open loan.
Anyone requiring an open bridging loan of £100.000 would pay and arrangement fee of £1,000. Closed bridging would cost £500.00
If you estimate that you will need the loan for a very short period you should opt for a lower arrangement fee .If you are unsure how long it will take for the sale of your existing property to go through and think it may take several months go for the lower interest payments. Overall this will be the cheapest option.
You will be required to give security on the loan and prove that you can meet the payments. A valuation will be undertaken by the Lender .The cost of the valuation will be met by you. The will also need evidence that your property is being actively marketed.
Are there any alternatives?
If you are unsure about bridging loans you could consider letting your property instead. The rent must cover your mortgage payments. You will need to re-mortgage your old property and have sufficient equity to be able to release it to pay a deposit on your new home.
It is crucial that you check the renting market in your area first. You need to move quickly. It will however take longer to obtain a buy-to-let loan and advertise for tenants than it would to organise the bridging loan.
If you don’t need the equity from your old property to fund the deposit on your new home you may find it possible to have two mortgages running together. This will be very expensive but less than the cost of the bridging loan.
Pro’s and Con’s of Bridging Loans
They can be arranged very quickly and will tide you over at a very stressful time.
They solve a temporary cash shortfall.
They are very expensive.
Our Advisors here at Mortgage Fox will be happy to advice you regarding Bridging Loans. -- Click here