Should I get a Bridging Loan?

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.