What is a bridging loan?
A bridging loan is a loan that is usually taken out to solve a temporary cash shortfall that may arise when buying a property or business.
Give me an example of when a bridging loan is needed
A typical example of when you may need a bridging loan would be if you want to buy a second property before you've sold your first property.
You may also need a bridging loan if you're buying property at auction.
Bridging loans are usually more expensive that a home loan ss they are more risky for the lender. A bridging loan should only be used where you are fairly certain to repay them within about 6 months.
Some lenders will provide bridging loans to the self employed or people with bad credit, people who traditionally have found it more difficult to get loans and mortgages.
How does a bridging loan work?
In the case of buying property, a Bridging Loan is normally secured by getting a mortgage on the new property, and taking out a second mortgage on the property being sold. The bridging loan will depend on a positive valuation of the relevant properties.
Lenders will usually allow Bridging Loans of up to 65% of the value of the properties, less existing mortgages. But this will vary lender by lender so shop around for the best deal.
You can usually borrow between £25,000 to £500,000 as standard for a bridging loan. However, larger bridging loans are possible but may take slightly longer to arrange.
How do I get a bridging loan?
After applying for a bridging loan the lender will assess the application and if they decide to offer the loan they will issue an offer in principle.
If you agree to the offer in principle, the lender will arrange for a valuation of the property the loan is to be secured against.
You will usually be required to pay for this property valuation.
The cost of the valuation will vary but expect to pay in excess of £200.
You will need to instruct your solicitor or conveyancer to initiate the usual conveyancing tasks i.e. local authority search, checking the deeds of the new property and so on.
Expect the entire process to take around 7 to 10 days
How much does a bridging loan cost?
You will normally be charged a set interest rate for a bridging loan and this will be referred to in terms of a percentage per month.
As an example, if you borrow £200,000 at 1.5% per month, the loan will cost you £3000 per month (i.e. 1.5% of £100,000 for each month).
As time is usually of the essense when applying for a bridging loan, you may not have the luxury of having enough time to shop around for the best bridging loan deal. But if you do have time, shop around for the best deal.
If you have a bad credit history you can expect to pay more.
Can I apply for a bridging loan when buying a property at auction?
If you buy a property at auction, for your own occupation or as an investment, you will usually have to complete within 28 days.
Specialist bridging lenders, whose main business is to cater for auction purchases, should be able to help you.
These bridging loan lenders are usually "non-status" (they make no enquiries of the financial standing of the borrower).
Where do I get a bridging loan?
You may be able to obtain one from your own bank. If not, you will have to contact a specialist bridging lender (who may be more geared up to deal with your application quickly).
the money should be available within a few days of your application. This
will be dependant how quickly the conveyancing has been done by your solicitor
or conveyancing agent.