What do you Need to Know About Bridging Loans?
Bridging loans can be very useful if you need a set amount of money, for a short period. It essentially helps you to bridge the short gap between purchasing a new property and selling your old one. They are ideal if you want to buy a property at an auction. In instances like this, you may need the money right away but you might not have sold the property in your possession yet. If you think that a bridging loan could be for you, then you should know that there are two types. You have closed bridging loans and open bridging loans. Take a look below to find out more.
Closed Bridging Loans
If you have a closed loan, you will have a fixed date to repay the money. If you have exchanged but you are still waiting for the sale then a closed loan would be the best solution here.
Open Bridging Loans
If you have not exchanged contracts yet, then an open bridging loan could be the best solution for you. With this kind of loan, you will not have a fixed date, but you will have to pay off the entire loan within a year.
First and Second-Charge Loans
When you take out a bridging loan, you will then have a charge placed upon your property. This gives the lender the chance to take possession of the property if you do not make the repayments. If you have a mortgage on your property then you will have a second charge loan. This means that if you fail to meet payments and you have to sell the property to pay the loan, then the mortgage will be prioritised. If you own the property, you will have the first charge. This means the loan will be repaid first, should you default.
About Bridging Loans
It doesn’t matter what loan you decide to go with, because your lender will have to see evidence of the property you want to buy and they will also want to see the price you intend to pay for it. They will also want to see proof, that shows the property and the steps you are taking to sell it. Having a backup plan is always a good idea if your repayment method falls through.
How Expensive are Bridging Loans?
Bridging loans tend to be priced monthly. This is because people only take them out over short periods. You can expect to pay fees that range between 0.5% and 1.5%. 2% of the loan can be used as a set-up fee, so although they are not for everyone, they can be a solution if you need money for a property immediately. In cash terms, you could borrow between £25,000 up to £25m.
Speaking with a broker is usually the best way to ensure that you get the best result out of your property loan.
NB: We don’t advise on Bridging loans, but we do work closely with our partners who we can refer you too.
