When should you use closed bridging finance?

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Closed bridging finance has a fixed repayment date, and this means there are occasions when it is more suitable to be used than open bridging finance.

Typical use

A closed bridging loan can be used when the borrower is certain of the date when funds will be available to repay the loan. A typical situation for this is when someone is reliant on funds from the sale of their existing property to finance part or all of the purchase of a new property.

If the completion date for the sale of the existing property is known and this is before the completion date for the purchase of the new property, then a closed bridging loan can be used to complete the purchase of the new house. The loan is then repaid when the sales is completed on their old house.

Interest and acceptance rates

Closed bridging finance will normally be offered at a lower interest rate than open. Generally, the loan application will have a better chance of succeeding if it is for a closed bridging loan as well, because lenders feel more confident that the loan will be repaid, and reward less risk with lower interest rates.

The downside of a closed bridging loan is that there are penalties charged for late repayments, but there are usually no extra charges for early repayments.

Should you take out closed bridging finance?

Due to the penalties for late repayments, borrowers need to think carefully about applying for a closed bridging loan. They need to be certain that the funds will be available at the time of the repayment date. If funds to pay back the loan are dependent on the sale of property, then the sale process should have reached a stage where the buyer is fully committed and there is a definite completion date.

Bridging loans for renovations

Many lenders will not provide a standard mortgage on property that is need of extensive renovations. A bridging loan can be used for the building work and then a mortgage arranged for when the work has been completed. As long as there is a fixed finish date for the building work to be completed and a mortgage has been arranged for the refurbished property, a closed bridging loan can be used to finance the work.

If there are delays in completing the refurbishment, that could mean that the borrower misses their repayment date.

Bridging loans can also be useful for landlords who need to renovate or convert properties before tenants move in. Providing tenants have been found, and there is a definite date for the completion of the renovations, then a closed bridging loan can be applied for.

Helping you make the decision

If you are uncertain about whether a closed or open bridging loan is best for your situation, talk to Ascot Mortgages for impartial expert advice. We can arrange the appropriate bridging loan, and can help with the information and documentation required for the loan application.

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