Bridge the gap

A BRIDGING loan could be a solution to moving home faster as intense competition sees properties being snapped up in the face of strong demand. This is a type of short-term finance that is typically used to ‘bridge the gap’ between two financial transactions. For example, if you are buying a new property but have not yet sold your previous one, a bridging loan could be used to cover the costs of the purchase until the sale of the previous property is complete.

RIGHT PROFESSIONAL ADVICE
But a bridging loan is only a temporary solution – usually lasting less than 12 months – and is certainly not for everyone, but in challenging market conditions they can prove to be a flexible and useful solution. The main advantage of a bridging loan is that it can provide you with access to finance quickly and easily. They can be expensive, so it is important to obtain the right professional advice, to compare different lenders before you decide to take one out.

THINKING OF DOWNSIZING
They can also prove a useful option for people looking for a temporary solution to their funding needs. Not only are they used for chain breaks, but they are also commonly used for investment property purposes. Bridging loans can also prove advantageous for owners of valuable homes who intend to release substantial sums. With house prices standing at record highs, it could leave many homeowners who are thinking of downsizing sitting on substantial but unrealised gains. Again, bridging loans could be a solution.

UNLOCKING PROPERTY WEALTH
For example, for many older homeowners wishing to move, the immediate problem is how to unlock the wealth they have accumulated in bricks and mortar at the price they want or expect. This is where bridging loans could help them to span that gap and buy the property they want to enjoy in retirement.

Bridging loans can range from £25,000 up to £5 million, with terms ranging from a few months to a few years. Interest rates on bridging loans are usually higher than standard mortgage rates, as they are considered to be a higher-risk form of lending.

LOAN-TO-VALUE RATIO
However, the precise interest rate will depend on a number of factors, including the value of the property, the loan-to-value ratio and your personal circumstances. And as with any other type of loan, you will need to meet certain criteria in order to be eligible for a bridging loan.

For example, most lenders will require you to have a good credit history and sufficient equity in your property. You will also need to prove that you have a realistic exit strategy in place in order to repay the loan.

Don’t forget, our professional, friendly advisers are on hand to support you and can help you explore all of your options.