Everything you need to know about Bridging loans

This article covers everything you need to know about bridging loans. We’ll explain what a bridging loan is, discuss whether bridging loans are a good option for you and tell you how much a bridging loan will cost. We’ll lay out the advantages and disadvantages, as well as giving you some practical information on how you can pay them back. We will be updating this article periodically to provide answers to more of your frequently asked questions.

Friends Capital are mortgage and loan specialists. We are one of the UK’s leading brokers, with over 30 years of experience. Friends Capital work with all of the UK’s top financial institutions, bringing you the very best the market has to offer. We’ll find the perfect solution for your needs, clearly explaining the pros and cons of different options.

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Is a bridging loan a good idea?

It’s a fantastic option for short-term periods where quick and easy finance is required. However, bridging loans aren’t designed to be a long-term solution, and so aren’t a good idea for when you need finance for over two years.

What is the meaning of bridging loans?

Bridging loans, help you to ‘bridge the gap’ between periods when finance is easily accessible to you. For example, bridging loans can help homeowners purchase a new home while they wait for their current one to sell. In this situation, your existing home will be used as collateral. Bridging loans are short-term learns, usually up to one year.

How do bridging loans work?

Bridging loans are different to remortgages as they are not dependent on income, but are backed by the value of the property you own.  Typically interest rates are higher than other loans & mortgages as the interest is charged monthly, however these do not have to be paid until the end of the term when the borrower has secured permanent financing. >When you apply for a bridging loan, the funds can be ready to go in you

What are the pros and cons of bridging loans?

Pros:

  • Funds are available very quickly
  • Interest paid on completion
  • Lenders are more open-minded about borrowers with bad credit histories.
  • There are no exit fees for early repayment.
  • Avoid wait times due to property chains

Cons:

  • Higher than average interest rates. Lenders can’t make as much money over time as with a mortgage, so it can cost more to take out a bridging loan.
  • Lending rates vary wildly; there are some fantastic opportunities to take advantage of, but terms and rates aren’t as uniform as other loan types.

How much is a bridging loan in the UK?

Many factors affect the kind of bridging loan rates you could get from a lender. If you want to take out a bridging loan for a house purchase, the lender will calculate the loan based on the value of the property you currently own. Lenders of bridging loans will give an amount based on the maximum loan to value (LTV) amount, which is typically between 70-80%.

How fast can you get a bridging loan?

Friends Capital can have your funds in your bank account in just 1 or 2 weeks. It takes a typical bridging loan company between 4 to 6 weeks from application to payout. Bridging loans for investors can be completed significantly quicker.

If you own a property without a mortgage or if there is enough equity in your mortgaged home, Friends Capital can arrange a bridging loan for you to buy a house.

  • Equity: The difference between the value of your house and the outstanding mortgage.

A bridging loan is a short-term loan often used to buy a new house while you wait for your old house to sell. If you are stuck in a property chain or have yet to find a buyer for your home, then a bridging loan allows you to purchase a new home. The interest becomes part of the loan (roll-up/deferred interest), and you pay this when you repay the loan at the end of its term. This allows you to use the entire loan amount to buy your new property, and there are no monthly interest payments.

How do you pay back a bridging loan?

You pay back your bridging loan at the end of a set term, usually when you sell your house and typically within 12 months. Interest is calculated monthly, but you will need to show that you have a way to pay back the bridging loan at the end of the term. This may be when you sell your old home or by refinancing with a traditional mortgage. If the bridging loan is for property development, with the intention of adding value to properties, the loan can be repaid when the house sells, or the loan can be repaid by arranging a buy-to-let mortgage.

What is the difference between a bridge loan and a home equity loan?

Home equity loans often have lower interest rates compared to bridging loan rates. The loan must be secured against your home, and you can borrow an amount equal to or less than the value of the home if there is no mortgage or the value of your home less the outstanding mortgage (your equity).

You can take out a home owner loan to pay for renovations and extensions. You can also use a home equity loan to pay off other high-interest debts, pay for medical bills, or to pay for education, among many others.

How much can you borrow on a bridging loan?

You can borrow up to £10 million with Friend’s Capital, but the amount you can borrow is calculated against the property’s value or properties if you have several properties. The calculation of how much you can borrow is called the loan to value. Friends Capital will provide a quote based on the LTV, which can range between 65% and 80% of the property’s value or properties.