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 your account in around 1 – 2 weeks, meaning you can proceed with a house move or development without delay. 

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%.