Five frequently asked questions on bridging loans

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Question

A bridging loan is a short-term loan mainly used for property transactions, but not confined to property. We find that there are five questions about bridging loans perhaps asked more than any other:

1. When do you need a bridging loan?

A major advantage of a bridging loan is speed, with high street banks and building societies often taking a long time to process a loan application. A decision on a bridging loan application can take less than a day, and the funds can be available in a few days. This makes bridging loans an ideal way to quickly complete property purchases.

A common use for a bridging loan is when someone is relying on the sale of their existing home to help purchase a new home. If the sale of their house has not yet been completed, a bridging loan can be used to purchase the new home and then repaid once the sales of their existing home has gone through.

Bridging loans can be taken out by individuals, landlords and businesses. As well as speeding up the completion process of a house purchases, developers can use bridging loans to refurbish property. When buying property at an auction, successful bidders will usually be required to complete the purchase within 28 days. The bridging loan provides the purchase funds and can be repaid once longer-term borrowing has been completed.

Businesses can use a bridging loan for short-term finance during periods of low cash flow.

2. What is an exit strategy?

To qualify for a bridging loan, you will need an exit strategy, which is a plan for when and how the loan will be repaid. If the loan is being used to complete a house purchase, the exit strategy will show that the loan will be repaid as soon as the existing home sells.

3. What is the difference between closed and open bridging loans?

A closed bridging loan is one with a fixed repayment date, while an open bridging loan is more flexible as it does not have a definite repayment date. An open loan is still a short-term loan as repayment, though not fixed, will be expected in less than two years.

4. How much interest is charged on a bridging loan?

Unlike mortgages, there is no standard charge for a bridging loan. As assessor looks at each loan application and assesses the amount of risk, with a higher-risk loan having more interest applied.

5. Where can you get a bridging loan from?

The best way to secure a loan is through a bridging finance broker. At Ascot Mortgages, we can match your individual requirements with the best lender and the best loan deal.

Ascot Mortgages is regulated by the Financial Conduct Authority, which makes sure that any advice or loan we arrange is part of an ethical and responsible process.

The first step towards securing a bridging loan is to talk to our team today to discuss your borrowing needs.

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