Bridging loans are short term secured loans, traditionally associated with ‘bridging the gap’ if you want to buy a new property before selling an old one. They are often used by property developers to bridge the gap between the purchase of a property and organising longer term finance like a mortgage.
Bridging loans are often used in tandem with development finance.
There are two types of bridging loan; traditional Bridge Loans and exit-Bridge Loans.
The borrower will get a Bridge Loan to pay for the purchase of a property before organising longer term finance. Often this is done when a property is bought at auction and needs to be paid for quickly.
This will be done when someone is looking to sell a property, or pay off a development loan before the term is up. It is often a refinance.
Whilst there is no fixed repayment date, you are usually expected to pay it off within 12 months. The lender will want to see evidence of a clear repayment strategy and they will also want to see evidence of the new property you are purchasing and your plan to sell current property.
Most people pay off their bridge loan with money from the sale of their current home, but there are other repayment options.
Because they are short term, bridging loans are usually quite expensive. They may have fees of 0.5-1.5% per month which is pricier than a normal mortgage. You want to ensure that you only take a bridging loan if you are confident you wont need for an extended about time.
You can borrow a maximum of 75% of the value of your property.