Explained by Licensed Conveyancer and Property Lawyer Sarah Ryan
Bridging finance is a short term loan enabling you to proceed with your property purchase when you have not sold your existing property.
Another example of where bridging finance can be useful is buying property at auction when you need quick access to funds to assist with the purchase of the property. See Pros and Cons of Buying a Property at Auction.
Bridging finance is a specialist area and can be expensive. You should take specialist advice before proceeding with any financial transaction to ensure you understand the process and it meets your needs.
How Does Bridging Finance Work?
Meet with an advisor who specialises in bridging finance, take time to discuss your circumstances and concerns, and make sure you understand the process.
Compare the market and speak to different specialists and lenders to understand what is on offer before you make a decision.
You will be required to complete an application form setting out your requirements, provide identification, evidence of your existing property and new property; together with information about your financial circumstances.
The bridging loan lender will usually make a quick decision compared to mainstream lending as to whether your application has been successful and funds will be made available to you.
Bridging loan finance can be taken out for a period of 2 weeks to 3 years depending on the agreed arrangement. The term will be part of the offer, you must ensure you are able to repay the entire amount of the bridging loan, including any added fees and interest by the end of the term; this should form part of your exit strategy referred to below.
If your application for bridging finance is successful the lender will secure a charge for the amount drawn on completion, together with interest and any additional agreed fees.
Bridging Finance Interest and Repayments
Bridging finance is a short term loan, the catch to bridging finance is a high rate of interest being charged. Before you decide that bridging finance is an option, you should consider carefully your financial circumstances, how you can repay the bridging loan and how you can pay the increased interest.
Bridging loans should not be viewed as an alternative to mainstream lending and only considered when:
- You understand the term of the finance, interest and fees being charged
- You are able to meet the repayments
- You have an exit strategy to repay the finance such as selling your home. If this exit strategy does not work you need to consider carefully whether you should proceed with bridging finance, as failure to repay the bridging loan at the end of the short term could result in losing your property.
- You have taken legal advice on the financial commitments you are signing up to and fully understand the bridging finance process and repayments.
Sarah Ryan is a Licensed Conveyancer, a Chartered Legal Executive and Head of Conveyancing at Co-op Legal Services.