Bridging Loan

What is a bridging loan?

This is a loan that is usually taken out to solve a temporary cash shortfall that may arise when buying a property or business, or perhaps paying for a renovation.
A typical example of when you may need one would be if you want to buy a second property before you've sold your first or you may need one if you're buying a property at auction.

Make sure you can repay a bridging loan promptly!

As they are more risky for the lender than the usual housebuyer's loan, bridging loans are more expensive and should only be used where you are fairly certain to repay them within about 6 months.

Depending on the lender, a Bridging Loan can be obtained by the self employed or people with bad credit. In other words to those who traditionally have found it more difficult to get loans and mortgages.

In the case of buying property, a Bridging Loan is normally secured by getting a mortgage on the new property, and taking out a second mortgage on the property being sold.

In this case the loan will depend on a positive valuation of the relevant properties.

How much can you borrow on a bridging loan?

Lenders will usually allow Bridging Loans of up to 65% of the value of the properties - less any existing mortgage. But this will depend on the lender so you can shop around for better deals.

You can usually borrow between £25,000 to £500,000 as standard.

Larger loans are possible but may take slightly longer to arrange.

You will normally be charged a set interest rate, which is usually referred to in terms of a percentage per month.

For example; say you borrow £100,000 at 1.5% per month, the loan will cost you £1,500 per month (ie 1.5% of £100,000 for each month).