Bridging Loans - An Overview

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In response to the current business and economic climate, there are an increasing number of businesses who are taking advantage of a bridging loan to re-locate or help with short term cash flow problems.

The usual problems involved when arranging a mortgage on property that has been purchased at auction for examples timescales required, can mean using bridging finance is the best option. However this has been exacerbated by the introduction of new policies from many major banks and building societies. This can prevent borrowers from arranging a re-mortgage unless they have owned the property for a minimum of 6 months. There are however still some high street lenders willing to lend inside of the 6 month ownership period.

For traditional users of bridging loans this has created potentially higher costs as they are forced to extend the term of the short term bridging loan and find themselves unable to move the product to one from high street lenders that can offer lower interest rates.

Bridging Loans can be used to help overcome the problems ...
... encountered requiring a loan within 28 days to complete a purchase for a short space of time until they are able to swap to a traditional mortgage The nature of a bridging loan is that it is meant to serve as a short term solution to funding a property purchase and the interest rates charged generally reflect this.

Property investors often use short term bridging finance to release cash or equity in order to be able to complete another deal or simply to help with cash flow if income is shown to improve during certain quarters.

If a customer needs to raise a cash sum to purchase a property before being able to arrange a traditional mortgage for example at an auction, then bridging finance can cover the period in between the purchase from auction and the mortgage being available. Typically a loan would be agreed for a period of up to 9 months but more usually for one to six months. The loan would be secured against at least one property and often two and any default in repayments or other conditions could and still do have very serious consequences for the purchaser as they would with a mortgage contract.

A solicitor with bridging loan experience will be able to ensure that you are aware and have been advised of the implications of taking out bridging finance and the differences between this and a mortgage loan.

Some bridging loan lenders now give the option of a product with the option to extend the loan at a later date for a further six month period (subject to loan to value), giving customers the peace of mind to know that they will not be charged penalty fees or other charges whilst they wait for their mortgage to be approved.

Residential customers who are considering using a bridging loan will also have the security of being able to plan their outgoings if there is a delay in the paperwork or legal searches during the sale of their current home or purchase of a new home.

These new products are designed to take into account the fact that customers can reluctantly have to wait for six months before being able to arrange a mortgage with their bank or building society due to the six month ownership rule. These products are also suitable for customers who may be buying a property in need of renovation work before the regular mortgage lender will agree to a mortgage on the property.

Anyone who is moving into a property that requires substantial building works can now agree a bridging loan to cover the period of the renovation and then apply for a mortgage from their preferred bank or building society.

A bridging loan can often be an expensive option but could now be an affordable option when considering a loan that will be in place for over six months.