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Bridging Loans

Being a specialty loan, many people are unaware of what exactly a bridging loan is, and in what circumstances it is used in – this guide should help you to fully understand what they are for and how they can be a real help.

Bridging loans are used during the purchase of property, in circumstances where the buyer needs access to money in order to complete before they have sold their existing property.

When buying a property, the majority of people need the money from the sale of their current home in order to fund the purchase of the new property. The problem is that this is usually true for the seller of that property, and so on and this is what is referred to as the ‘chain’. At some point in the chain there is either a first-time buyer, or a cash buyer thus ending the chain.

Once completion dates have been agreed up the chain, the sales/purchases can all be carried out, however if someone within the chain decides to pull out, then the rest of the chain collapses. If you have found your dream home and are all set to complete when your buyer pulls out, then you may find that the person you are buying from wishes to look for a different buyer as they want to complete as soon as possible. It is in this situation that bridging loans can be used to their greatest benefit.

By taking out a bridging loan, which is a loan that is secured against your current property, you can get the money that you need to complete on the purchase while you wait for a buyer to come along.

As the loan is secured against property, the amount that can be borrowed is large, in some cases it can be equal to the amount of equity in the property, this means that you should be able to access enough to cover the amount you need to complete on your purchase.

The uses of bridging loans are very specialised, but if you do find yourself in a situation like that outlined above, it can be invaluable and prevent you from missing out on the house that you have your heart set on.