What are Bridging loans?
A Bridging loan, is a loan taken out for a short term, usually to bridge a gap. Most bridging loans can not go beyond 12 months.
When would I use a Bridging Loan?
There are 2 examples we see fairly regularly:
1) If someone is looking to purchase a property that is unmortgageable and either move in/rent out or sell on after the work is complete.
2) If someone is looking to purchase a poperty at an auction. Bridging Finance can be arrange in a short space of time.
However, they can also be used to “chain break”. If you are in a chain on people moving and there is an issue quite late on. You can obtain a bridging loan for the short term, this allows you to complete on the purchase and sell at a later date.
What are the benefits of Bridging loans?
They are quick to set up. They can usually be arranged within a week or 2 max including the legal work. A conventional Mortgage would normally take 3-4 times that.
They are flexible, unlike a “normal” mortgage, the property does not need to be in a habitable state.
You do not need to make any repayments at all, you can usually just clear the loan plus any interest at the end of the deal.
What are the negatives of a Bridging loan?
The big one is cost. As a general rule, there are fees of around 2-4% (ie £2000-4000 on a £100,000 loan). The interest is usually higher, anywhere from arounf 0.65% per month.
If you are not paying the interest on a monthly basis, it can become compounded.
This is just a brief overview for Bridging loans. We are more than happy to have a chat about them with you. Our Brokers in Manchester & Stockport are fully qualified and able to help assist you with your Bridging loan enquiries.