HILTON FINANCE
Bridging loans
A bridging loan is a short-term secured loan, which essentially allows you to 'bridge' the gap between the purchase of a new property and the securing of funds. Since bridging loans are often taken out as an emergency, the rates can be considerably higher than conventional mortgages. Nevertheless, they can sometimes be the best option for a borrower.
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Features of bridging loans
Bridging loans work in basically the same way as standard mortgages with some notable features:
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Deposit- minimum deposit of 25% is usually needed.
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High interest rates- short-term nature of bridging loans mean that lenders charge higher interest rates on a monthly basis.
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Evidence of a repayment vehicle- since bridging loans are interest-only, a repayment method (i.e. a strategy for repaying the loan) is required to redeem the balance upon expiry of the mortgage. This, in most cases, will be the sale of the property.
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Roll-up option- the monthly payments on some bridging loans can be rolled up- meaning, all the interest is accumulated and paid only at the end of the term.
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Types of bridging
Bridging loans can be both regulated and unregulated by the FCA. The typical term for a regulated bridging loan is 12 months with the latter being 24 months.
Bridging loans may also be categorised as either:
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Closed bridging- this is where a seller has found a buyer for their property and they need funds to cover the purchase of a new property. This represents as less risk to lenders and so rates are lower.
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Open bridging- this is where a seller has not found a buyer for their property and they require funds to purchase a new property. Since a buyer is not found, there is a higher chance that the property may not be sold, which presents a greater risk to lenders. Hence, rates are higher for open bridging loans.
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When a bridging loan may be suitable
Bridging finance can help you if:
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You need to buy your home quickly but cannot sell your existing property in time.
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You've lost your buyer for your property but you want to continue with the purchase.
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You want to buy an auction property.
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You want to develop a property.
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You want to purchase a property that cannot be mortgaged nor inhabited.
However, it is important to note that determining whether a bridging loan is suitable for you is complex task. It requires consideration of one's personal circumstances and individual needs. Therefore, the expertise of an experienced broker like Hilton Finance becomes invaluable. We recognise that bridging is an expensive financing option but one that is sometimes necessary. As such, we consider the situations of all our clients on a case by case basis and help you to decide whether you should build or burn this bridge.