Bridging loans are a short-term, high interest funding option, bridging a gap at times when outgoing debt and incoming credit don’t synchronise seamlessly. Primarily but not exclusively used to facilitate property purchases, these stop-gap solutions can be significantly more expensive than other avenues.
Designed to allow homeowners to complete on a new purchase prior to selling their current property, bridging loans provide a short-term loan at a high rate of interest. These products help not just those with misaligned sale and completion dates but also buyers intending to renovate and turn properties around at speed or those purchasing at auction.
With approval to access conventional lending streams becoming more stringent, bridging lenders have flooded the market, a number of whom apply massive admin fees on top of interest rates, up to a staggering 18% a year.
Landlords and amateur property developers are key users of bridging loans, as are auction buyers needing quick funds and asset rich borrowers wanting straightforward lending on residential properties.
Bridging loans can be a viable solution to many financial problems, but a growing trend of using bridging loans solely due to the longer turnaround of more conventional loan options sees them being wrongly championed by rogue brokers intent on making a fast buck.
Tempting though they may be, a steadfast exit strategy should be a key part of the decision making process. Bridging loans often have limited lifespans, meaning mainstream mortgages or buy to let alternatives need to be sought or properties sold to clear the bridging debt.
The FCA has raised concerns that unless borrowers are fully aware of the hidden and hefty fees, bridging loans should be avoided as an alternative to standard lending.
Bridging lenders vary from the tiny to the huge, and unfortunately come with a similar variety of professionalism and prudent recommendations. To play it safe, deal only with Financial Conduct Authority regulated brokers. We work with the UK’s leading bridging loan companies. We will listen to your requirements and cut through the complex market to find the best deal for you, saving you time, money and a lot of effort.
