A bridging loan is a short-term funding option. They are used to 'bridge' a gap between a debt due and the main line of credit becoming available. While they are mainly for used for property transactions, bridging loans can also act as a short-term loan in pressing circumstances. They can be invaluable in facilitating a property purchase that otherwise would not be possible. However, as you may have guessed with a stop-gap measure, they appear to be more expensive than an average loan.
The most well-known use of bridging loans is when you have not been able to sell your home quickly enough to buy your new property, therefore apply for a bridging loan to 'bridge' the gap between the costs. Bridging loans can also be used if you are buying a property at auction or if you are doing up a dilapidated property that an ordinary mortgage lender would not provide you with a loan for.
There are two types of bridging loan:
1. A 'closed' bridge:
This is a bridging loan where there is a guaranteed exit in place because long term funding has already been arranged. However, because property sales and mortgages can fall through at the last minute, these are far less common.
2. An 'open' bridge:
This loan is used when there is not a definite exit date for the lender because long term finance is not in place. They are usually valid for a specific period, such as six to nine months, but can be longer in certain circumstances.
Generally, bridging loans are aimed at landlords, property developers and investors including those who wish to purchase at auction, or where a mortgage is required quickly. They may also be offered to wealthy or asset-rich borrowers who want straightforward lending on residential properties. In recent times, the use of bridging finances has become popular in the market by business novices and those who are established in the market. It seems to be a quicker pathway to gaining finance with pleasing rates.
Sourcing a bridging loan is easier than you think; according to MoneySuperMarket, bridging lenders can come in all shapes and sizes, ranging from one-man bands up to professional outfits regulated by City watchdog and the Financial Conduct Authority (FCA). If you want to take out a bridging loan, it is advisable to go to an FCA-regulated broker as they will only recommend a bridge if it is appropriate for you and your circumstances.
Here at Stirling Ackroyd Legal we have a specialist team of solicitors who concentrate on just bridging finance. The team is headed by Mrs. Aminah Bokhari who has more than 13 years of experience with some of the world’s biggest bridging finance companies. Mrs Bokhari can advise you on all aspects of the finance including whether or not it is something you would consider.