Most of us, on more than one occasion have dreamt of having that perfect house - the one to build memories in; or maybe the perfect property for personal use or commercial requirement. What if you happen to see the perfect home and want it to be yours immediately? But then what happens to the home that you are currently living in? Sell it and buy the new house with the money that comes in? So everything is set and you decide to go in for it. Now, what happens if the two transactions i.e. the purchase of your new property and the sale of the other do not occur simultaneously? ... Solution - Bridging Loans.



Bridging loans, just as the name suggests, is a loan taken to bridge the gap between your resources and your need. A bridging loan provides you with the finance required for a new property (personal or commercial) prior to your existing property having been sold. One cannot rely on the cash obtained from the sale of the existing property to pay up for the new one you have your eyes on. Bridging Loans or Bridging Finance gives you the finance to serve your immediate need. You can rely on them when for some reason the sale of your existing property is delayed or you are unable to apply for a mortgage. Bridging loans are short term financing options used to fill in any cash shortfall between property transactions. This includes buying property, business or even paying for renovation.

Bridging loans are short term loans. Their term can extend from a week to up to 6 months and nowadays, even up to 2 years. Bridging loans can be arranged for any sum between £25000 to a few million pounds. Most bridging loan lenders do not ask for upfront legal and arrangement fees. This is simply because Bridging Loans are secured loans, secured on property (collateral). Therefore, Bridging Loans require evaluation of collateral. Bridging loans are offered on the value of the collateral. Lenders typically consent to Bridging Loans of up to 65% of the worth of the properties In addition, Bridging Loans carry with them a high rate of interest. The interest rate is generally dependent on credit history, value of collateral placed and loan term. All this gives lenders a certain amount of security.

Advantages of Bridging Loans:

- Speedy finance is the main advantage of Bridging Loans. Most Bridging Loans can be made available within 24 hours if all the necessary documents are ready.

- Bridging Loans are short term loans and hence can be paid off quicker than assumed.

- Bridging Loans are easily available for those of you with bad credit too.

- Most Bridging Loan lenders do not ask for upfront legal and arrangement fees. Usually there are no redemption penalties with bridging loans.

Disadvantages of Bridging Loans:

- Until a customer sells his existing property he has to bear the brunt of interest.

- While bridging loans are convenient the interest rates are exorbitant.

- When repaying a Bridging Loan, an individual will also be paying for the mortgage on his existing property.

- Bridging loans are secured loans, secured on property. Therefore, a borrower would be required to put up significant collateral.

During the loan term, the borrower is required to pay only the interest i.e. Bridging Loans are "interest-only" loans. The borrower continues with this repayment plan until the property the loan is being used for is sold. When the sale finally does occur, the proceeds of that sale are used to repay the principal. In the off chance that the property is not sold before the Bridging Loan matures, it can usually be converted to a conventional loan without a payment penalty. If the house is sold within the term limit, all the unearned interest is credited back to the borrower.

Before setting your mind to taking a Bridging Loan, a borrower must be certain of his situation and that he can repay the loan within a short period of time. Always remember - never settle for the first quote you receive. Shopping around gets you better deals. The loan amount will vary from lender to lender. Getting pre approved would give you an idea of how much you can get. Being pre approved, enables you to act quickly when the property is available. Although Bridging Loans are very speedy, higher amounts can take longer for approval. Along with demand, the market for bridging loans is also constantly increasing. This has made Bridging Loans a realistic option for those who need the quick buck!