If you are in need of some short-term finance, then a bridging loan could be the answer.
Simply put, a bridging loan is a temporary loan, usually less than 12 months, that is used to ‘bridge’ the gap between paying or funding a purchase or a debt, and the money that you have lined up becoming available.
For example, you could use a bridging loan as a short-term answer to purchase one property before you manage to sell another, which then pays back the bridging loan.
Bridging loans can be invaluable in helping with a property purchase that under normal circumstances would not be possible. However be warned – as with any short term or stop gap finance, they can be considerably more expensive than a conventional loan, so tread carefully. Bridging loans usually attract higher rates of interest and fees than a bank will charge, but with banks generally being more reluctant to lend quickly, if at all, then bridging loans will undoubtedly outperform the bank on the time frame required to get your funds.
You could be looking at costs of 1.5% per month, which equates to 18% a year.
Who uses bridging loans?
In most instances, bridging loans are used by landlords and smaller property developers. They can be used for a variety of reasons, including property investment, buy-to-let and development..
What can bridging loans be used for?
It is important to note that bridging loans should not be used to replace mainstream or traditional lending.
While a bridging loan may sound tempting, if you are thinking about taking one out, you seriously need to think carefully about how you will repay the loan. This might, for example, involve getting a mainstream mortgage or a buy-to-let mortgage, or selling the property altogether.