What Are Bridging Loans?

A bridging loan is used for financing the gap between what is needed to purchase a property while you are waiting for the funds to become available from selling another property. In the real estate industry, people often use them when they are purchasing a property, but are having to wait for the sale of a different property to be finalized. A bridging loan is a type of secured loan. So in order to get one, you will need to own a high-value asset, like land or property.

What can a bridge loan be used for?

There are many different reasons that bridging finance can be used for. They include:

  • Purchasing a property
  • Buy-to-let investment
  • Property development
  • Business ventures
  • Divorce settlements
  • Paying a tax bill

Bridging loans are often used at auctions by property developers. That is due to the fact that they are frequently needed for paying a deposit in order to secure a purchase on short notice.

Property development bridging loans

Bridging finance is very popular with property developers and landlords who need to be able to fund projects that are on properties that are going to be sold off quickly. Bridging loans in Southampton are available for locals in the area.

Residential bridge loans

Another group of people that bridging loans are becoming very popular with are individuals who are moving to a new house.

Kinds of bridging loans

Bridging loans are available in two different types.

Open bridge loan

This type of loan does not have a set end date. That means you can repay them whenever your funding becomes available. Usually, they will last for up to one year, and even longer sometimes.

Closed bridge loan

This type of loan has a fixed end date. Usually, this date is based on when you know that your funds will be available for paying back the loan. Usually, they are short-term bridging loans, which last for just a couple of weeks or months.

Usually, open bridging loans tend to be more expensive than closed bridging loans are since they provide more flexibility. No matter which type you select, it is critical to have an exit route – or a way for your bridging finance to be repaid.

How to select the best bridge loan for you

There are some things you should consider before you begin to compare bridging loans. They include:

  • The amount you need to borrow. Bridging finance is offered by lenders from £5,000 to £10 million and even more.
  • The worth of your property. This will affect the bridge loan rates you receive ad the amount you can borrow.
  • How long you will need to borrow money. A bridging loan can be only one month and up to two years.
  • Whether or not your property has a mortgage. It will affect the amount you will be able to borrow using a bridge loan. It will also affect whether or not you can get a first charge loan or a second charge loan.

Do you need a first charge loan or a second charge loan?

A first charge loan is when the bridge loan is the only and first borrowing secured against a property. Usually, mortgages are first charge loans. However, if there is no outstanding borrowing or mortgage on your property, then a different type of loan – such as a bridge loan – may be a first charge loan that you can use.

A second charge loan is when a property has a loan or mortgage already. Second charge lenders normally will need to get permission from the first charge lender in order to be added.

A property can have an unlimited number of charges listed on it.

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