Posted 23 April 2025
Bridging finance can be a useful tool if you need to secure a property quickly or if you’re in the process of selling your current home but need to buy a new one before completing that sale. Here’s how you can use bridging finance to help you get the house you want:
1. Understanding Bridging Finance
Bridging finance is a short-term loan designed to “bridge the gap” between purchasing a new property and selling your current one or securing long-term financing. It is typically used for periods of 1 to 18 months. Bridging loans are faster to arrange and can be used for residential or commercial property purchases.
2. When to Use Bridging Finance for a House
You might consider bridging finance if:
• You’ve found your dream home but haven’t yet sold your current property: If your current property is taking longer to sell than expected, bridging finance allows you to secure the new house without waiting for the sale to complete.
• You need to act quickly: If the house you want is in high demand and you need to move quickly to secure it, bridging finance offers a quicker solution.
• You’re purchasing a property at auction: If you’ve won an auction bid and need funds immediately to complete the transaction, bridging finance can provide the necessary capital.
• Renovation or refurbishment: If you plan to renovate a property and need immediate funds to buy or refurbish it before selling or refinancing.
3. How to Use Bridging Finance
Here’s a step-by-step guide:
a. Assess Your Needs and Eligibility
• Loan Amount: Determine how much you need to borrow. Bridging loans typically offer between 50% and 75% of the property’s value, but the loan-to-value (LTV) ratio may depend on your financial situation.
• Repayment Method: You’ll need to consider how you plan to repay the loan. Bridging loans can be repaid in different ways, such as through monthly interest payments or by paying the full loan amount upon the sale of your current property.
b. Choose the Right Type of Bridging Loan
• Closed Bridging Loan: This is when you have a clear exit strategy (e.g., the sale of your current home is already agreed and will complete soon). This can be cheaper as the lender has more certainty regarding repayment.
• Open Bridging Loan: This is suitable if your exit strategy (like selling your home) is uncertain or if you’re waiting for other financial conditions to be met. This type of loan tends to come with higher interest rates due to the added risk to the lender.
Bridging finance can be arranged through a specialist broker who has access to specialist lenders. And, just like a regular mortgage you’ll need to provide all the necessary documentation to prove your income and expenditure along with the property details and your exit strategy.
Use the Loan to Purchase Your New Home
• Once the bridging finance is in place, you can proceed with the purchase of your new home. The loan can cover the full cost or part of the purchase, depending on the agreed terms.
f. Repay the Loan
• When you sell your existing property or secure long-term financing, you can use the proceeds to repay the bridging loan.
4. Risks and Considerations
• Interest Rates: As mentioned, interest rates for bridging loans tend to be higher than traditional mortgages, which can make them expensive if used for long periods.
• Exit Strategy: Make sure you have a clear plan for repaying the loan (e.g., selling your current home or refinancing).
• Fees and Costs: Be aware of additional fees, including arrangement fees, legal costs, and early repayment fees.
• Short-Term Nature: Bridging finance is designed to be short-term, so it’s essential to ensure you can repay the loan before the term ends to avoid penalties.
5. Alternative Solutions
If bridging finance seems expensive or unsuitable for your situation, consider other options like:
• Traditional Mortgages: If you’re eligible, a standard mortgage may be more affordable in the long run.
• Longer Completion Period: Some sellers might offer a longer completion period that allows you more time to sell your current home.
• Remortgaging: If you have substantial equity in your current home, you may be able to remortgage to release funds for your new property.
Bridging finance can be a practical solution to help you buy a new home in the UK before selling your current one. However, it’s important to weigh the costs, risks, and have a solid repayment plan in place. Consulting with a specialist mortgage broker can help you determine whether this is the right option for you.
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