Bridging loans – Give you time to push the deal through
A bridging loan is a short term loan with a high interest rate. Traditionally, they’re used by people who want to fill the mortgage gap between buying a new home and selling their existing one. In short, UK bridging loans provide a mortgage on a new property plus a second mortgage on the property you’re selling.
Bridging loans are expensive. But sometimes they are the only way to keep your house purchase on track. Here’s an example. You’re buying a new home, but you can’t sell your current house quickly enough and the entire deal is at risk of falling through. So you take out a bridging loan to avoid losing the cash you’ve already spent on the deal, and to give you the extra time needed to push it through.
Bridging loan UK – a way to avoid repossession?
When the property market is healthy, with homes selling fast, bridging loans aren’t needed very often. But in a difficult housing market, when property is moving slowly or not at all, people are often forced to apply for a bridging loan as a last resort.
A bridging loan can make the difference between having your home repossessed and selling it yourself, so the expense can be worthwhile.
Bridging loan UK – high interest rates and hefty arrangement fees
• Bridging loans in the UK involve an arrangement fee of between half and one and a half percent of the total loan. Providers usually charge the Bank of England interest rate plus at least another 2 percent, often as much as two and a half percent extra. Some deals offer a higher interest rate but a smaller arrangement fee. Others promise accelerated cash in hand, but the interest rates for these deals tend to be even higher.
• Bear in mind that if you have a poor credit history, you will probably have to pay even higher rates
• If you’re certain your sale will go through soon, the intelligent option would probably be a low arrangement fee. But if you fear your bridging loan might be running for several months, the fee gets spread over a longer time so represents less of the total cost.
We have written a guide to selecting the right Bridging Loan, also below are some sites which can help you to learn more about Bridging Loans:
• Best bridging loans: bestbridgingloans.co.uk
• Easy Bridging: easybridging.co.uk
• Bridging Loan Finance: bridgingloanfinance.co.uk
Bear in mind that the current economic climate means deals are becoming rarer.
Please share your thoughts on bridging loans.
All your points are valid but bridging is so versatile and can also be used for things like buying a property at auction or renovating your home.