Bridging loans are often viewed as a very useful option to have during the sale and purchase of home, and in many cases they present the only option to ensuring a sale goes through on time or securing that dream home. This is especially true in times of economic uncertainty and the slow down of the property market.
There is a degree of risk involved for banks when lending bridging loans, and this is typically reflected in the higher than normal interest rates, as well as arrangement fees which are commonplace with most loans. As security, banks will usually take your property against the value of the bridging loan; therefore it is important that such loans are only taken out in the right situation or circumstance.
Usually, bridging loans are sought by homeowners when there is a delay in exchange between two properties. However, it is also possible to secure a bridging loan if a new home is bought before your existing home is sold – although extreme care needs to be taken in such situations to avoid excessive interest rate payments on the bridging loan.
There are two options available to those interested in a bridging loan. The first is an Open Bridging loan, which is made available to people who have had an offer accepted on a new home but have as yet to sell their existing home. Conditions for this type of loan will usually require a degree of equity within your existing home, as security risks are high for both borrower and lender.
The second and most commonly used is a Closed Bridging loan. This is offered to people who have exchanged contracts on both their existing and new properties, but are experiencing a delay in finalising terms and conditions. Therefore, a
bridging loan is often essential to ensure the sale is completed.
If you are considering taking out a bridging loan, be sure to discuss the matter in some detail with your bank or lender to ensure you are fully aware of the repayment requirements of the loan. New home buyers who plan to take out a bridging loan must ensure they have enough earnings to cover the repayments on two mortgages.
For buyers with problems in the sale of their home or who are experiencing delays in exchanging contracts on a new home, bridging loans can provide a useful solution. Knowing the fine details of this increasingly common requirement for house purchases is often the key to ensuring the right loan is chosen for the right situation.
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Andrew Regan writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.
