Property is expensive. In fact, owning your own home is likely to be the biggest purchase many of us make in a lifetime.
Freeing up any of that cash when you want to move on can be a slow process of waiting for a house sale to complete.
The main alternatives to bridging loans are a second conventional mortgage or remortgaging your current home to release equity. You can also look at taking out a bridge-to-let loan or other forms of unsecured loan.
So what do you do if you need the money more quickly? One option is a bridging loan, but there are a number of viable alternatives depending on how much cash you need to free up and how long you need to pay it back.
This guide explores bridging loan alternatives.
We update all our guides regularly. If you are researching bridging loans and we haven't got an exact guide that helps you, keep coming back as we update daily.
A bridging loan is a quick cash injection typically used in property transactions. Bridging loans are designed to give you access to temporary cash to plug the gap between needing to make a certain payment and the funds needed to pay it off arriving into your account.
One common example of where a bridging loan can be used is where someone wants to buy a new house before the sale of their existing home has completed.
The loan is secured against a property that you own - typically this will be your current home that you’ve either paid all of the mortgages off on or are well on your way to doing so. If you already have a mortgage on the property you want to secure your bridging loan against then you typically need to have considerable equity tied up in it to borrow more money.
Bridging loans are only ever meant to be temporary. This means bridging loan terms are very short, typically ranging from one month up to two years. When the term is up, you can either sell the property or remortgage onto more long-term finance.
As with any other kind of financial product, bridging loans come with pros and cons. The main advantage is fast and flexible access to cash. Approval can come in a matter of days rather than the months you could wait for a conventional mortgage. You can also borrow for purchases like land or uninhabitable properties that mortgages won’t approve.
The main disadvantages are the high cost and risks attached. Like other kinds of short-term borrowing, bridging loans come with high-interest rates. They also come with a number of additional fees and charges on top, making them an expensive way to borrow.
Bridging loans are similar to mortgages in that they also use your home as security. This means that if you can’t repay the loan or reach an agreement with your lender, they can force a sale of your property and recover their payment from that. This is always a risk that comes with any form on secured borrowing - you’re in trouble if a house sale falls through.
Bridging loans might be convenient, but they do come at a cost as we’ve just seen. So what other alternatives are out there if you want to move before you can sell?
If your plan is to secure a mortgage at the end of your bridging loan anyway, it might be worth exploring cutting out the middleman and trying to get a second mortgage from the get-go. This would mean you would have two mortgages - one against the home you currently live in, and one on the property you’re looking to buy.
You could pay off all of your current mortgage when the sale comes through. It’s not impossible to find a lender willing to do this, but read the small print on your mortgage to make sure there are no penalties for early repayment of your existing mortgage before going ahead.
A good alternative if: you would be looking for a mortgage on your new property anyway and you have checked for any fees or charges for early mortgage repayment.
Another option is remortgaging your current home onto a buy-to-let mortgage and using the equity released from that to buy the new property. This is best in cases where you’ve already paid off a lot or all of your mortgage and the home is more ‘yours’ than it is ‘still to pay off’.
A good alternative if: you have a lot of equity in your property, are happy to enter into another long-term agreement and can wait for a mortgage application to go through.
This new player in the property finance scene is a bridging loan that has the exit plan already built into it in the form of a buy-to-let mortgage when the term is up. This gives you fast access to cash as with a regular bridging loan, but also the security of a pre-approved exit route at the end - great for if you’re buying a fixer-upper to sell on.
A good alternative if: you’re a wannabe landlord or property developer looking to fund your next project and can afford to absorb the higher bridging loan fees.
If you don’t need to fund the whole cost of a property - perhaps only some renovation work or you already have a very large cash deposit to put down - then you might be able to raise the rest of what you need through a personal loan or even an agreed overdraft. These are by no means cheap ways to borrow (with the interest rates being high) but they don’t need to be secured to your home. You will need a plan to meet the monthly repayments, though.
A good alternative if: you don’t need to borrow the full value of a property and you have a reliable source of income to meet your monthly repayments.
Everyone’s needs and personal situation will be different, so there is no definitive answer to this question. The question here should really be which option is best for you. Despite their flaws and the risks attached, bridging loans offer unparalleled access to sizeable funds in a matter of days. If speed is the most important factor for you, there really is little competition.
Here at Money Savings Advice, we have partnered with some of the UK’s leading Bridging Loans brokers. They have already helped thousands of people get the best Bridging Loan deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.
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