A bridging loan is short-term finance solution that can help you to either purchase or refinance a property while waiting for long-term funding to come through. The term of a bridging loan is typically 12 months, however in some cases this may stretch to 24 months depending on the circumstances surrounding the purchase.
For example, if there is a delay in your mortgage application – or in the sale of your existing house – a bridging loan would support your purchase to cover the delay. Similarly, if you were looking to buy a property at auction, renovate and refinance it, a bridging loan would support your purchase during the period in which the condition of the building is considered inadequate for a standard mortgage.
The most important thing to remember when applying for a bridging loan, is that you need to have a solid exit strategy. Take a close look at your finances, and be realistic about how long you will need it for and how much it will cost.
How do Bridging Loans Work?
Bridging loans are short-term finance, and the loan itself is normally conducted on an interest-only basis. The majority of lenders will accept ‘roll-up’ interest, which means that monthly interest is added onto the loan in advance, as opposed to you having to pay on a monthly basis.
The loan itself is secured against the asset, or number of assets – which could increase the amount it costs to borrow.
Bridging Loan Rates
Proposition dictates the rate on the offer, which would include – to name a few – credit history, how much equity or deposit is available and more. The rates are not cheap, but it serves a purpose that other finance options are not able to offer.
Bridging Loan Lenders
There are many lenders in this market, so it is important that you use a broker that is able to source a number of lenders, without being tied to one.
Frequently Asked Questions
What Deposit Do I Need For A Bridging Loan?
If you do not hold any assets other than the proposed, then you will typically need a deposit between 20-25% of the property price.
Is 100% Bridging Finance Available?
If you have a number of assets that the lender is able to take security over with sufficient equity, the lender may advance 100% finance.
What Can I Use A Bridging Loan For?
A few examples of what a bridging loan can be used for are as follows:
Buying a property at auction where funds are needed quickly
Renovating a property
Buying a property to live in while your current residence is being sold
Renovating a dilapidated property
Been turned down by a lender
These are just a few examples, but as long as there is a clear exit strategy, our brokers are able to look at a number of alternative scenarios.
What Documents Will I Need?
The lender may ask for a number of documents, which can include the following:
Assets and liabilities statement
Income and expenditure
3 months worth of personal bank statements
Your bridging loan broker will advise you through this, as required documents can be lender-specific.
How Is A Bridging Loan Settled?
A bridging loan can be settled a number of ways, either by selling the asset to clear the loan or refinancing the asset onto longer term finance – such as a mortgage or commercial finance.
How We Can Help
We’re looking at the loans market every day, and know exactly when interest rates change, new products become available or new incentives go online. All this, balanced with our knowledge and experience as brokers, means we’re in a strong position to find you the best loan for your circumstances.
We’ll go over the whole process from start to finish, finding the right product for you and making sure you can comply with all the evidence, paperwork and terms of the loan. Yes, there are hoops to jump through, but when you know what to expect, it all becomes a lot smoother.
Ready to Talk It Over?
If you get in touch with one of our local offices, you’ll be able to speak to an experienced, friendly adviser who will be more than happy to go over everything. Getting a loan doesn’t have to be complicated. Let us do the hard work for you. Contact us for an initial chat today.