Selling a house can be a lengthy process. It’s an even longer one until you get the money from the sale back in your bank too.
There’s a lot of money tied up in those bricks and mortar - some that no doubt would be useful when buying another property in the meantime.
Bridging loans give you fast access to large sums of cash so that you don't miss a dream property, even if you have poor credit. They have high-interest rates and are considered risky if you don't have a buyer for your current home.
If you need some quick cash to tide yourself over in this process, you might hear bridging loans mentioned. But as with all financial products, they won’t be right for everyone.
This guide looks at bridging loan pros and cons to help you weigh up your decision.
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.
Bridging loans are essentially a short-term finance option for those looking to buy a property quickly. You can think of them as a temporary loan to get you from A to B - when the loan term is up, you can pay it off in full or secure a more permanent form of finance.
This makes bridging loans attractive in situations such as:
There is a range of different uses for a bridging loan, but they all have one main thing in common: the need to access cash quickly.
So what makes a bridging loan different from a regular loan? How is a bridging loan different to a mortgage? Are there any risks involved with bridging loans that you should be aware of? Let’s take a look at some of the pros and cons of bridging loans.
Bridging loans get the money in your bank much faster than a mortgage would. In fact, you’ll usually know if you’ve been approved for the loan within 24 hours of applying and can have the funds within 14 days. They are much better for short-term, time-pressured situations.
Bridging loans work on LTV - that means the more the property you’re securing the loan against is worth, the more you can borrow. In theory, you can borrow up to £250 million this way if you own a large estate. Some lenders will even let you borrow 100% LTV.
Most loans and mortgage lenders want to see that you’ve got an excellent credit rating and a stellar track record of meeting monthly repayments. As bridging loans aren’t paid off in the same way and often rely on a property sale instead, your ability to repay doesn’t really have anything to do with your credit history.
For that reason, bridging loans allow people with bad credit who might not qualify for other forms of finance to borrow money.
With some investments - like buying a property that is uninhabitable or buying a plot of land - you wouldn’t be approved for a mortgage. But you can get a bridging loan. You wouldn’t have to ‘miss the boat’ on these opportunities with a bridging loan.
Some bridging loans are regulated by the Financial Conduct Authority. This means your money is better protected as the lender has to follow strict FCA rules to maintain their integrity and protect their customers from mis-selling.
If anything does go wrong and you need to make a complaint or claim for compensation as a result of bad advice, you can access the Financial Ombudsman Service to settle your dispute fairly.
Like mortgages, bridging loans are secured against your home. This means that if you can’t make your repayments or secure a longer-term form of funding after the bridging loan is up, you risk losing your home as it could be repossessed to pay what you owe.
Short-term finance usually means expensive finance. Bridging loan interest rates are no exception - they charge interest monthly at a rate of anywhere between 0.5% and 1.5%. This is equivalent to between 6.1% and 19.6% APR – far higher than most mortgages.
There is a range of various fees that typically come with a bridging loan. They can include arrangement fees, broker fees, valuation and sometimes legal fees depending on the complexity of your situation.
Some bridging loans will only accept property sale as an exit route - the way you pay back what you owe. But a house sale is never really over until you’ve handed over the keys and have the money in the back. It’s not unheard of for buyers to drop out before completion.
For example, if you only have a year to get the sale before the end of your loan, you may end up being forced into selling the home for less than you would’ve liked or scrambling to be approved for longer-term finance after that.
Loans secured against commercial properties (such as business premises, investments or buy-to-let properties) are unregulated. This provides less protection from mis-selling upfront and if something does go wrong and you need to make a complaint.
If you want to move on but are having trouble selling, there are alternatives to bridging loans offering different ways to borrow money.
Personal loans or overdrafts still let you borrow money quickly. Short-term development loans are also available for property developers. But these often come with much higher interest rates than mortgages. So if you have time to wait, you could consider remortgaging.
As with any financial decision, look carefully into all of the pros and cons of each of your options so you can make an informed choice. Seek professional advice if you’re unsure. The bottom line here is: before you borrow money, know how you’re going to pay it back.
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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