Bridging Loans

Can people use a Bridging Loan when they’re buying a house?

In a property purchase situation, the main use for Bridging Loans is to purchase properties at auction. Most auctions have a twenty eight day completion, which means that as soon as the hammer falls, you’ve exchanged contracts and you’re liable to purchase a property within twenty eight days. 

Generally, you will not get a Standard Residential Mortgage within that short of a duration. Properties sold at auction are also more likely to have an issue such as damp, or need for a full renovation, meaning that you wouldn’t usually be able to get a mortgage on that property anyway, so again, a Bridging Loan would give you the chance to carry out required renovations until the property is mortgageable.

How does a Bridging Loan work? 

It works slightly differently than traditional finance in the way that interest is calculated. Interest is calculated on a monthly, rather than annual basis with a Bridging Loan. There are also two ways that you can pay for the Bridging Loan. The most popular is retained interest, and these are closed Bridging Loans, which have a set period of time, usually nine to twelve months, during which time you’ll be charged around 1% monthly interest. The Bridging Loan provider will deduct the interest from the loan, so at the end of the term, you owe the loan amount, minus the interest. Retained Interest Loans are much faster to arrange because there’s no affordability assessments for them.

There are also Bridging Loans which have no payments due during the term, and when you repay the loan, you repay the interest as well. You can also have service interest, which is similar to a standard mortgage, except with higher interest. You pay the monthly interest every single month as you would a mortgage. They take slightly longer to process because there’s affordability questions, and the lender will make sure that you can afford to pay the interest every month.

Can you have a fixed or variable rate?

No, generally all Bridging Loans are Fixed-rate. It’s usually charged on a monthly basis, so that’s how Bridge loans are quoted. Your interest rate would be a set rate every single month.

How do you go about applying for a Bridging loan?

We are a whole of market brokers, so we deal with a variety of Bridging Lenders. The client can go direct to Bridging Lenders themselves, and a lot of auction houses have lenders in-house. As we work with Bridging Lenders on a daily basis, however, we understand the best lender for each set of circumstances, as all have different criteria, much like Mortgage Lenders. 

Some borrowers may prioritise speed and others may prioritise the interest rate. We can find the best lender for your specific needs. The fastest Bridging Loan I’ve set up took six working days from the start to completion.

How long does it take to arrange the Bridging loan? 

Some Bridging Loan companies have very low rates, but take a long time to arrange, and some have higher rates, but they will arrange a loan a lot faster.