Bridging Loans Guide

Bridging loans can be used to finance the gap between what is needed to pay to buy something, but you are waiting to sell something else for your funds to become available. They are often used in real estate by individuals who are purchasing a property but still are waiting to sell another property. Bridging loans uk are a type of secured loan. That means to get one you need to possess a high-value asset, such as land or property.

What can a bridge loan be used for?

There are many purposes that bridging financing can be used for, including the following: Purchasing a property Buy-to-let investment Property development Divorce settlements Paying tax bills Business ventures Property developers also use bridging loans at auctions. That is because they frequently need to put down a deposit in order to secure their purchase on short notice. Bridging loans for property developers Bridging finance is very popular with property developers and landlords to fund property projects that they are planning to sell off quickly. Residential bridge loans This type of loan is also becoming increasingly popular with individuals who are moving house as well.

Bridging loan types

There are major types of bridging loans that are available:

Open bridge loans This type of loan does not have any end date. That means you can repay them whenever your funds become available. Usually, they last for up to one year, and even longer at times.

Closed bridge loans This type of loan has a fixed end date. Usually, the data is based on when you know your funds will be available to pay back the loan. Usually, they are short-term bridging loans, which last only a few months or weeks.

Usually, bridging loans are more expensive compared to closed bridging loans since they are more flexible. Whichever type you choose, it is important to have an exit route – in a way to pay off our bridging finance. How to select the best type of bridge loan There are a couple of things that need to be considered before you begin to compare bridging loans.

They include:

The amount you need to borrow.

Bridging finance is offered by lenders from £5,000 to £10 million and more.

The value of your property. That will affect the amount you can borrow and the rate you can get on your bridge loan rate

How long you need to borrow money. A bridging loan can range from one month up to two years. Whether your property has a mortgage on it. That affects the amount you can borrow with a bridge loan. It will also affect whether you will be looking at a first or second-charge loan.

First charge loan or second charge loan?

Whenever you are applying for a bridging loan, a ‘charge’ will be added to the property by the lender as a form of security. If you are unable to repay your loan, the charges set the priority of your debts. If a property is seized and sold to pay outstanding loans off, then a first charge loan will first need to be paid before a second charge can be paid back.

A first charge loan is where the bridge loan is the only or first borrowing that is secured against your property. Usually, mortgages are first charge loans. However, if you do not have outstanding borrowing or mortgage on our property, your first charge loan can be a bridge loan or a different type of loan.

A second charge loan is where the property already has a mortgage or loan against it. Usually, second charge lenders need permission from the first charge lender before it can be added. There are no limits on the number of charges a property can have listed on it.