Bridging loans are a short-term funding option, usually required to 'bridge' a gap between the purchase of one property and the sale of another.
For example, where a purchaser has bought a new property and exchanged contracts to sell another but has yet to complete on the sale. This sort of loan is usually time limited and linked to the contractual timetable of the sale of the existing property. It is known as a closed bridging loan.
A bridging loan that is not specifically time limited is known as an open bridging loan and whilst not time limited, it is usually for a period of no more than one year.
Bridging loans are quite expensive and there is likely to be an arrangement fee. Furthermore, whichever kind of loan you take out, the lender will want to see evidence of a clear repayment plan such as using cash from a property sale or the taking out of a new mortgage. They will also want to see evidence of the new property you are purchasing and the price you plan to pay for it as well as proof of what you are doing to sell your current property if relevant.
Of course, taking on a bridging loan is to take on a considerable liability. No matter what you call it, a mortgage or a bridging loan is still debt and debt that needs to be serviced. Whilst taking a bridging loan may sometimes be necessary (perhaps where Inheritance Tax is payable but a property has yet to be sold) the risks associated with such a loan should be properly evaluated and a ‘Plan B’ should be in place - just in case!
For more information contact us or speak to an advisor on 01628 507477.
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