The process of selling and buying a home isn’t always straightforward, which is why you might need a ‘bridging loan’ (or bridge loan) to get you over the line.
You can also use a bridging loan for renovation or if you’re buying a property at auction and need funds quickly.
Sometimes people shy away from using a bridging loan because they don’t understand them or have heard they’re risky. However, they’re becoming more and more popular because they can be a quick and smart way to get from A to B.
What is a bridging loan?
A bridging loan is a short-term finance option to support the purchase of a property.
The most common types are used to help someone buy a property when their buyer has pulled out or been delayed. With a bridging loan you can complete your purchase and repay the loan when your property sells.
Another common use is a bridging loan for renovation. Where you are buying a property at auction or something that is a do-er upper, a bridging loan for renovation can provide funds outside of a mortgage to secure the purchase and fund renovations.
Funds for a bridging loan can be provided very quickly in comparison to a mortgage.
As you might expect, as a bridging loan is a short-term option, they usually come with higher interest rates, which is why it’s useful to make use of an expert to get the right deal.
When used correctly a bridging loan can be a powerful tool for property buying and development.
Do you need a bridging loan?
Before taking on a bridging loan, to be able to use it for maximum effect, there are some important questions to ask:
- Purpose: what do you need the loan for – to complete a purchase, to buy at auction, for renovations on a potential purchase?
- Lending: how much do you need?
- Exit: how will you repay the loan?
- Borrower: what sort of experience do you have?
- Security: what is the type and condition of the property?
By asking these questions, you can explore options with open eyes and make sure your bridging loan is right for you and, most importantly, manageable.
How does a bridging loan work?
The terms and conditions for a bridging loan vary from lender to lender but you can expect that a bridging loan will be secured against property or properties.
The application process and release of funds is much quicker than it is for a mortgage because it is usually based on property value as opposed to your income. This is also why a bridging loan can be so useful if your purchase chain has collapsed or for a property bought at auction.
In the example of a bridging loan for renovations, you can borrow money based on the value of the property once refurbishment works are complete.
A bridging loan is usually repaid through the sale of a property or securing a mortgage.
Despite bridging loans having become more commonplace over the years, it is specialist lending so you’re better off with an expert on hand to explore your options and suitability, and to support the application process.
By using an expert, you can understand and consider all the variables. For example, a bridging loan for renovations may have different terms to one where your buyer has dropped out. Everyone’s circumstances are different so an expert by your side will help you make sense of the options and the process.
Know where the exits are
The key with bridging loans, whether it’s to secure a property because your purchase chain has collapsed or to close the gap in finances for refurbishment, it is essential to be clear on how you will settle the loan.
A bridging loan is a short-term vehicle. Things can change so it is vital to build different options into your loan to make sure that if the unexpected should happen, you’re not left in the lurch.
This is where Affinity Group comes in.
We have a team of specialists that can help you to consider all the options, make sure the loan is suitable and manageable, and broker a good deal.
Whether you need to get that purchase over the line or you need a bridging loan for renovations, get in touch here.
