Bridging Loans

Understanding Bridging Loans

Bridging loans serve as a crucial financial tool for individuals seeking to "bridge the gap" between property purchase and the acquisition of other funds, such as mortgages or proceeds from property sales. These loans offer quick, flexible, interest-only solutions, making them ideal for those facing time constraints and unable to secure traditional financing.

Key Aspects of Bridging Loans:

Deposit Requirement:Borrowers typically need to provide a deposit ranging from 10% to 40% of the property's value. The deposit amount depends on factors like property condition, type of security, and planned renovations.

High Interest Rates:Due to their short-term nature and potential risk associated with the properties involved, bridging loans carry higher interest rates, typically ranging from 0.5% to 1.5% per month, compared to standard mortgages.

Short-Term Nature:Regulated bridging loans extend up to 12 months, while non-regulated ones may span up to 24 months. Regulated loans suit residential purchases, while non-regulated ones are ideal for buy-to-let and commercial properties.

Exit Strategy Requirement:Lenders often require evidence of a repayment vehicle or exit strategy, detailing how the loan will be repaid at term end. This could involve property sale, and lenders ensure the projected sale price aligns with market trends.

Costs Associated with Bridging Loans:The total cost of a bridging loan varies based on individual circumstances and factors such as:

• Interest Rates: Typically between 0.5% and 1.5% per month.
• Term Length: Ranging from 1 to 36 months, with longer terms being costlier.
• Product Fees: Usually between 1.5% and 3% of the loan amount.
• Deposit: Typically at least 25% of the loan amount.
• Valuation Fees: Around £500 per property.
• Drawdown Fees: Commonly around £500 for administrative purposes.

When considering bridging loans, comparing options is crucial. Consulting with a financial expert like Our Mortgage Broker can streamline the process, helping you access the best-suited products and ultimately saving both time and money.