How many times have you been casually going about your
business, seen a great property and thought, "that would be
a really nice place to live"? Then you snap out of it,
knowing you can't lay your hands on the money fast enough.
Well what if you really wanted this property? You discussed
it with the agent, your emotions got the better of you and
you made an offer.
This has to be a fast sale or the vendor will sell it to
someone else, what will you do? How will you find the cash
at such short notice? Unless you happen to have thousands of
pounds lying around in some bank account you forgot about,
you're going to have to borrow some money and fast!
Did you expect the financial industry NOT to have a product
for people just like you? Of course not. They've thought of
everything. The answer is a bridging loan!
A bridging loan provides a temporary window. As is suggested
by the name, it bridges the gap between the amount of cash
you need now and the amount you currently have. What you
earn normally has no bearing on the matter. How much your
current property makes on open market again does not come
into it. Your bridging loan takes care of your what you need
If you apply for a bridging loan you can buy the property
immediately. You will pay it back when you sell your current
property. So, you see, you can have the best of both worlds.
Just make sure you read the small print. Make sure you're
not being charged extortionate amounts of interest. I always
make a point of reading the small print, no matter how long
Usually, a bridging loan will be a short-term loan with a
repayment cycle of one week to six months. There should
always be a clause allowing the customer to repay the full
amount as soon as their current property is sold.
More often than not, a bridging loan uses the customers
current property as security. As the customer, you have
options. You will generally have the option of securing the
loan on both properties or either one of them. This gives
you a little flexibility.
These guys usually move fast. The brokers' valuer will
assess the property and come up with a figure on which your
bridging loan will be based. This figure will depend on many
factors. At the top of the list, you'll find the usual
suspects: location, number of bedrooms, size and the general
condition of the place, to name but a few.
As soon as the valuation is complete, the lender is in a
position to advance the cash to the customer. If you choose
a good broker this will happen fast. As a rough rule of
thumb, expect to be able to borrow up to 65% of the value of
the property. Lenders offer as much as ?25000 to some
million pounds on a bridging loan.
Where's the best place to get a bridging loan? Ask your
financial advisor and look around, especially on the
internet. More and more lenders are coming online these days
and there are always some really great deals to be had as
lenders try to "out-offer" each other. Get quotes from as
many different lenders as you can. Draw up a quick rate
comparison sheet to help you decide. You will find that
there are many different fee levels for this kind of loan.
Sometimes it may be better to pay a little more if the terms
are more favourable. Again, always read the small print.
One of the main deciding factors for you will be the speed
at which the cash will be forthcoming.Always make this the
most important factor in your decision. No point going
through all this to be pipped at the post because you were
waiting for the money. The whole reason to get a bridging
loan is to get instant cash. Choose a lender who
specifically states how fast they deliver after signing. You
will find many lenders are less than acceptable on this
So, a bridging loan can help you out in a tight squeeze.
However, there are always two sides to the coin.
Bridging loans are perceived as "higher risk" by most
lenders. Interest rates are generally higher because of this
and you may find that the one-off charges are also higher
than with a conventional loan. Usually because this is the
customers' only option and the term is short, the rates will
be accepted. The best way to approach a bridging loan is to
keep the term short thereby minimising costs.
A further risk when using a bridging loan is counting on
your existing property being sold quickly. Should the market
drag for you, you will end up paying lots of interest on
your bridging loan. This will be your situation until your
home is sold.
To conclude, a bridging loan may seem like a great way out
and used correctly, it often is. However it is not without
it's risks. The risks are very real and deciding to take out
a bridging loan should be a measured decision. For these
reasons, it's highly recommended that you talk to a good
independent financial advisor.
Fabio Marcell is a seasoned contributor to many online and
offline journals specialising in the financial sector. He
has many years experience in the loans industry and is
currently sponsoring the following website:
(for web reprints please ensure this URL is hyperlinked)
© 2006Fabio Marcell - All Rights Reserved