Compare Bridging Loans

A bridging loan is a short-term loan that allows you to bridge the gap between selling your current property and buying another one. Bridging loans are typically taken out for around six months, but in some cases can last for up to 12 months. When finance is only required for a short period of time, they can provide the cheapest option for raising the funds you need. Their biggest selling point: they’re quick to arrange, have flexible lending criteria so that approvals can be given quickly, and they can be secured on all types of property, including property that other bridging lenders may decline.

If you're looking to move house, but haven't yet found the perfect new home, you may find yourself stuck in limbo while you wait for your current home sale to go through. But if you have enough money saved up to cover the deposit on your next property, why not use it as equity? Bridging loans allow you to do just that. You'll be able to take out a loan against the equity in your current property, then use this cash as deposit on your new home. Once this is done, you'll have enough money in hand to cover all costs associated with moving into your new place - including solicitor's fees and stamp duty!

A bridging loan works by giving you the money to proceed with a purchase while you free up money from other assets / investments or secure a long-term finance plan, such as a buy-to-let mortgage. They're a handy way to access short-term cash injection, while you put a more sustainable plan in place or liquidise assets.

Bridging loans can help with various situations, meaning that it is often used for multiple reasons:

• Chain break finance

• Property refurbishment

• Re-Bridging

• Property Auctions

• For quick purchases when a bargain property comes along

• Buying property below market value

• Repossession prevention

• Property development

As with all types of loans, bridging loans do come with benefits and risks:

Pros of bridging loans:

• Quick to arrange.

• It is possible to borrow very large sums of money.

• Flexible repayment terms.

• It is possible to secure lending on properties where some high street lenders may not.

• Can be arranged as a 2nd or 3rd charge.

Cons of bridging loans:

• Bridging loans are a secured way of borrowing, so this means that you’ll need to put up an asset against the loan. If you are unable to repay the bridging loan, you risk losing said asset.

• They are unregulated (borrowers have no recourse to the protection of the FCA).

• Higher interest rate.

• Bridging loans can come with a range of fees.

Bridging loan rates tend to be higher than longer term loans such as mortgages as you are paying for the advantage of borrowing a large sum of money quickly. As bridging loans tend to be short term, their rates are usually given on a monthly basis, rather than a traditional annual percentage rate (APR). Bridging loan rates typically range from 0.75% to 1.45% for residential bridges, and 1% to 1.95% on buy-to-lets or houses in multiple occupation (HMOS).

Unlike a residential mortgage there are 3 ways that the interest on a bridging loan is charged.

• Monthly – Similar to an interest-only mortgage where you pay the interest payments each month and they are not added to the loan.

• Rolled up interest – Interest is simply calculated up front and added to the balance of the overall loan.

• Retained interest – The borrower also borrows the interest payments due on the loan, when the finance is taken out. This money is then ‘retained’ by the borrower who uses this to cover the monthly payments. Most bridging loans are calculated this way.

It is calculated by adding the Net Loan Amount and the interest. This number will change depending on term length and if the interested is paid monthly or rolled up.

Like with any forms of borrowing, there is a certain amount of risk. However, bridging loans are a great short-term option to help with plugging a financial gap.

The amount of time it takes to get a bridging loan approved differs from one lender to the next. It will also depend on your individual circumstances. Although it is not unusual for bridging loan providers to approve applications within 24 hours, it can take between two and four weeks for a bridging loan to get paid out once an application is approved.

A bridging lender will consider using any type of property for security, including residential semi-commercial, commercial and land. This means a lot of options, such as:

• A new residential property, commercial property, investment or trading property

• Buy-to-let purchases

• Quick completion of a property purchase

• Auction purchases with pre-auction bidding facilities agreed

• Housing developments

• Barn conversions

• Refurbishment projects to sell on for profit

• Building your own home

• Un-mortgageable properties

• Buying before selling

• A short-term solution for cash flow problems

Yes, a few high street banks offer bridging loans. However, as bridging finance is a form of short-term specialist finance many of these are only available through specialist banks, challenger banks and specialist bridging lenders. You should also use a specialist bridging broker who has extensive knowledge of the market to ensure you’re getting the best possible deal.

In order to get a bridging loan, you’ll need:

• Good credit - you’ll have to pay the bridging loan back so quickly, so your bridging lender will want to see that you to have an excellent credit rating.

• Strength of the asset – like a residential mortgage, the bridging lender will want to check that the property you’re buying doesn’t have any significant problems.

• Exit strategy: a plan for how you’re going to repay the bridging loan.

The bridging loan application process looks a bit like this:

• Make an application online

• The bridging loan lender runs a credit check

• The lender accepts or rejects your application

• Valuation and lender checks take place

• Funds reach your account

Yes! Bridging loans can be used for a deposit on a property. Bridging loans are often used by those who are stuck in between the purchase of a new property and the sale of their current one. This means that you can move forward with purchasing your dream home without delays with selling your existing home. The bridging loan can then be repaid once the existing house is sold.

There are a few options for short-term loans that might help with bridging the gap between buying and selling a property, or act as a temporary solution to fund other projects. Here are some of the other options:

• Borrowing more on your mortgage

• Secured loan

• Unsecured loan

• Savings or a family loan

• Property development finance

• Refurbishment loans

• Commercial mortgages

Again, with any type of borrowing, you should always read the terms closely and consider and compare:

• the bridging loan rate and the annual percentage rate (APR), which includes fees

• how much you’ll repay in total, over the lifetime of the loan

• any penalties for missed, late or early repayments, or set-up fees at the outset