Bridging loans are typically used for property transactions. They are designed to assist home movers who wish to purchase a new home prior to having sold their existing home. When equity is tied up in an existing mortgage, a bridging loan may be appropriate to fund a new property purchase. They can be especially useful for property developers, landlords and people who are purchasing property at auction. Home-movers may wish to use bridging loans to cover a break in a property chain, so that they can purchase a new property while waiting for a mortgage. However, it is important to remember that taking out a bridging loan does not guarantee that you will obtain a mortgage in the future.
The benefits of obtaining a Bridging Loan
Why a Bridging Loan?
The main reasons that people require a bridging loan are:
- To raise finance quickly
- To buy at auction
- To refurbish a property
- To bridge a shortfall of funding between buying and selling property when a sale is delayed
- To raise a deposit for purchasing property
- To purchase property that would not secure a mortgage in its existing condition with a mainstream lender
Things to consider
You should also note that bridging loan finance costs roughly the same amount to arrange as a commercial mortgage – and the finance you are receiving is going to be for a far shorter term. So only consider a bridging loan if you will be unable to secure a commercial mortgage, or you expect to only need finance for a relatively short initial term (while you renovate a property to sell for instance).