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A beginners guide to bridging loans

What is a bridging loan?

A loan which is secured against property or land and required for anything between 1- 24 months can be classed as a short-term loan, or bridging loan as it is otherwise known. For the loan to be regulated e.g. secured against your home, the term can last for no longer than 12 months; short-term loans for commercial use, however, can last for up to 24 months. Funds are usually available within a few weeks (sometimes less) and the loan is normally repaid through the sale of the property or refinancing of the property on to a long-term mortgage or buy to let.

Traditionally bridging lenders charged high-interest rates and expensive fees as the loan is high risk due to it historically being used to ‘bridge the gap’ between the sale of one property and the purchase of a new property. However, the recession sparked an influx of new bridging lenders into the marketplace as they spotted opportunities to assist customers in areas where ‘high street’ lenders were reluctant to lend. This caused greater competition in the short-term loans industry which fortunately for borrowers drove down rates and allowed some lenders to expand their criteria to meet new demands.

What are funds from short-term loans commonly used for?

A short-term loan can be used for any legal purpose. Below are some common examples of when this type of funding may be appropriate:

  • If you are stuck in a broken housing chain and need access to funds to secure the property you wish to purchase before your mortgage has completed
  • If you are purchasing a property or land at auction and need fast access to funds before a mortgage has been agreed
  • If you are a landlord or developer and need funds to refurbish a property before selling it or letting it
  • Businesses may use the funds to replace an expensive piece of equipment, meet a business obligation or settle tax liabilities

When to consider a short-term loan

Compared to other forms of lending, this type of funding is still more expensive and should only be used when you need quick access to funds and have a pre-arranged exit strategy in place. Such as, a mortgage in principle with a lender or the sale of the property as soon as any refurbishment work on it has been completed. It is crucial that you speak to a Mortgage Adviser who has experience in this area to ensure that they can process the loan quickly and secure you the best deal. Our Advisers have an unrivaled level of knowledge in specialist areas such as this and will consider all lending options to ensure you receive the most cost-effective solution.

If you would like any further information then please call our Mortgage and Protection Advisers on 01702 533 400 or email info@ingard.co.uk.

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