This guide will give you the basics regarding the availability and use of Bridging Loans to acquire properties that may not otherwise be available to you.
If you’ve ever been looking to purchase a property in the UK in recent years you more than likely have come across this frustrating scenario. You’ve found your dream home and you can afford it – just. However there are 4 other people interested and you know if you are going to be able to get the house at the asking price then you need to be in a position to proceed now. Estate agents are well known for only recommending offers to clients when the purchaser can proceed immediately. The problem – your house is on the market and whilst there is lots of interest the completion date looks like it could be a few months down the line by which time your dream home will likely have disappeared from the market. In an alternative scenario you could have found your dream property at an auction but most auctions require you to complete within 28 days. It would be a big risk to assume you can sell and complete on your house sale within this time frame.
In both these scenarios bridging loans can be a valuable resource to use that would allow you to get your dream property with exposing yourself to a large degree of risk. Effectively it allows you to borrow the money to buy a new property before you have sold you current one. Taking a typical scenario a couple might own a house worth £400,000 with a mortgage of £200,000 but have found a house they must have for £600,000. It will take too long to wait for their current house to sell so they take a bridging loan for £600,000 to buy the new house. The cost of a bridging loan is usually shown as a percentage interest per calendar month (pcm) and typically ranges from 0.75% to 1.25%. Some lender will charge an arrangement fee of around 1% and some even charge an exit fee so bridging loans are often not a cheap way of achieving you dreams. Once their own house has sold they will have around £200,000 from the proceeds of the sale that will allow them to mortgage their current home and pay off the bridging loan. The costs incurred from the bridging loan could be added to their final mortgage to ease the need for finding the money up front.
It may be possible to reduce the costs of the bridging loan by taking out a closed bridging loan. With closed bridging loans you agree with the lender when you will repay the loan and the lender will require you to have a completion date for the sale of your current property and most likely have already exchanged contracts. In these cases you can get deals with only a 0.5% arrangement fee and 0.5% pcm interest. Bridging loans that are not secured in this way are called open bridging loans.
As with all financial services it pays to speak to an expert and you can find a qualified adviser at the website www.bridgingloans.co.uk where you can also find much more information on bridging loans.
