Why would you need bridging finance? If you’re a residential property owner, the idea could well make you feel nervous. It’s often thought of as something scary, and horribly expensive.
However, bridging finance is just what its name suggests. It’s finance to “bridge” the gap between any payment you need to make, and the time when the money will be available. It’s there to give you the finance you need when you need it, so that you can get on with your purchase – or your life!
So why would you need bridging finance in a residential property context?
The most likely reason you might need bridging finance would be if you’ve had your offer accepted on a property you’re keen to buy, but you haven’t yet managed to sell your existing property. If you have a firm offer on your house, but you won’t be able to complete before you complete on the new one, you can arrange a “closed” bridging loan. This can be set with a definite repayment date, so the interest rates will be quite reasonable. You can also get one of these if you haven’t a property to sell, but you are arranging a mortgage which won’t be ready in time for the completion date. This means you won’t miss out on your dream property!
If your existing house is still on the market, without any firm offers, you can still arrange a bridging loan, but this time it will be an ”open” bridging loan. That means a loan without a definite repayment date set, so the repayments will be a bit higher than on a closed bridging loan. This will enable you to secure your dream house – and also helps to avoid a log-jam in the property chain. But of course you do need to be pretty sure you will sell your house eventually!
Although buying your house is the most usual reason for getting a bridging loan, it doesn’t have to be the only reason. Because bridging finance is by definition short term, it can be used on any occasion when you might need short-term finance – such as a big bill, a holiday etc. Usually two years is the absolute maximum loan term, so you need to have a clear idea where your repayment funds will be coming from. Provided you can do this, bridging finance can be a good idea as it doesn’t have early repayment penalties. But it’s secured on your property, so don’t take risks!
If you’re interested in bridging finance, but feel uncertain about how to go about it, your best plan would be to work with a qualified mortgage broker who understands the process. You’ll find it’s a great way of helping you achieve what you want – and you’ll also find it’s not so scary after all!
Please note that the FSA do not regulate commercial loans or commercial mortgages