Should you use closed bridging finance?

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Question

There are two types of short-term bridging loans – closed and open. Open bridging loans do not have a fixed repayment date, though they are still short-term loans. Closed bridging loans have a fixed repayment date, so why might you use closed bridging finance rather than open bridging finance?

Lower interest rates

Closed bridging finance can usually be obtained at lower interest rates than open bridging loans. If you are certain that funds will be available on the repayment date, choosing the less expensive option makes obvious sense.

You will normally have to pay an arrangement and legal fees for bridging finance. You will also need to provide the lender with proof that you can make the repayment date. If you do not repay the loan on time, you will be charged extra fees.

Security

Most bridging loans are for property deals and property is usually required to secure the loan. If the loan is not repaid, the property could be at risk. Companies arranging closed bridging finance may be able to use company assets as security.

The amount borrowed

Most lenders will not provide bridging finance for loans under £25,000. In theory, there is no maximum amount that can be borrowed and seven-figure sums are not uncommon, but the lender will need to be satisfied that you can easily pay back a loan should it come to a high volume.

Most lenders will provide a loan based on loan to value (LTV), which is calculated on the price of the property being purchased. Typical loan to values are 70% of the purchase price, but this can vary with lenders. Some lenders will provide 80% LTV but may require extra security to do so.

The exit strategy

To obtain bridging finance, you need to provide the lender with an exit strategy. This is a plan of when and how the loan will be repaid.

A typical use for a bridging loan is when you are buying a new house but still have not sold the existing house. If you have a buyer for the existing house and a definite completion date that is after you want to move into the new house, you know that the sale of the existing house will provide the funds to repay the bridging loan. As you know the date the funds will be available, a closed bridging loan is suitable.

If you do not have a buyer for your existing house, or your buyer has not committed to a completion date, then an open bridging loan is more appropriate.

Where to get a closed bridging loan from

If you are certain that your exit strategy is easily achievable and that you can repay the loan at a specified date, you can apply for closed bridging finance.

At Ascot Mortgages, we are experts in bridging finance and can advise on your borrowing requirements. We have access to numerous bridging lenders and can match your closed bridging finance needs with the right lender, so why not speak to us today?

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