Risk It With A Bridging Loan?
How many times have you been casually going about your business, seen a great property and thought, "that would be a really nice place to live"? Then you snap out of it, knowing you can't lay your hands on the money fast enough. Well what if you really wanted this property? You discussed it with the agent, your emotions got the better of you and you made an offer.
This has to be a fast sale or the vendor will sell it to someone else, what will you do? How will you find the cash at such short notice? Unless you happen to have thousands of pounds lying around in some bank account you forgot about, you're going to have to borrow some money and fast!
Did you expect the financial industry NOT to have a product for people just like you? Of course not. They've thought of everything. The answer is a bridging loan!
A bridging loan provides a temporary window. As is suggested by the name, it bridges the gap between the amount of cash you need now and the amount you currently have. What you earn normally has no bearing on the matter. How much your current property makes on open market again does not come into it. Your bridging loan takes care of your what you need right now.
If you apply for a bridging loan you can buy the property immediately. You will pay it back when you sell your current property. So, you see, you can have the best of both worlds. Just make sure you read the small print. Make sure you're not being charged extortionate amounts of interest. I always make a point of reading the small print, no matter how long it takes.
Usually, a bridging loan will be a short-term loan with a repayment cycle of one week to six months. There should always be a clause allowing the customer to repay the full amount as soon as their current property is sold.
More often than not, a bridging loan uses the customers current property as security. As the customer, you have options. You will generally have the option of securing the loan on both properties or either one of them. This gives you a little flexibility.
These guys usually move fast. The brokers' valuer will assess the property and come up with a figure on which your bridging loan will be based. This figure will depend on many factors. At the top of the list, you'll find the usual suspects: location, number of bedrooms, size and the general condition of the place, to name but a few.
As soon as the valuation is complete, the lender is in a position to advance the cash to the customer. If you choose a good broker this will happen fast. As a rough rule of thumb, expect to be able to borrow up to 65% of the value of the property. Lenders offer as much as Ј25000 to some million pounds on a bridging loan.
Where's the best place to get a bridging loan? Ask your financial advisor and look around, especially on the internet. More and more lenders are coming online these days and there are always some really great deals to be had as lenders try to "out-offer" each other. Get quotes from as many different lenders as you can. Draw up a quick rate comparison sheet to help you decide. You will find that there are many different fee levels for this kind of loan. Sometimes it may be better to pay a little more if the terms are more favourable. Again, always read the small print.
So, a bridging loan can help you out in a tight squeeze. However, there are always two sides to the coin.
Bridging loans are perceived as "higher risk" by most lenders. Interest rates are generally higher because of this and you may find that the one-off charges are also higher than with a conventional loan. Usually because this is the customers' only option and the term is short, the rates will be accepted. The best way to approach a bridging loan is to keep the term short thereby minimising costs.
A further risk when using a bridging loan is counting on your existing property being sold quickly. Should the market drag for you, you will end up paying lots of interest on your bridging loan. This will be your situation until your home is sold.
To conclude, a bridging loan may seem like a great way out and used correctly, it often is. However it is not without it's risks. The risks are very real and deciding to take out a bridging loan should be a measured decision. For these reasons, it's highly recommended that you talk to a good independent financial advisor.