Should I use a bridging loan to buy a house?
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Bridging loans, or bridge finance, has gained huge popularity in recent years as a way of buying a property within a short timeframe. This type of product is less likely to be available from banks but rather private lenders and institutions.
Often used by property developers and landlords to purchase properties under a tight deadline, they are less common for families and homeowners looking to move home, but it is another option if you are caught in a property chain or need to move under short notice.
For homeowners who are struggling to sell their own properties, but have found a property they wish to buy, they can find the opportunity slipping away unless they complete fairly soon. This is where a bridging loan comes into play. You essentially use the finance from the bank or bridging provider to proceed and purchase the house - and once your initial property has sold, you can repay the bridging loan in full.
“Using a bridging loan effectively makes you a cash buyer,” explains David Beard, founder of price comparison site, Lending Expert.
“Being a cash buyer can helps you to complete a property deal much quicker, whether buying something off the market or at an auction. You do not get delayed by lengthy mortgage applications and bridging deals are usually completed in 2 to 4 weeks.”
“Your property is used as collateral or security,” Beard continues, “and your loan term is typically 3 to 24 months for you to resell your original home and clear your debt.”
“So if you are struggling to sell your home, or your buyer has pulled out and you are in a long property chain, using bridging can be used to access funds quickly and complete the deal fast.”
So Are Bridging Loans Safe For Homeowners?
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“Yes, bridging loans are indeed safe for homeowners,” confirms Beard.
“They are a slightly more expensive form of finance because you are only using them for short-term purposes and because of the speed of funds.”
“Rates start at around 0.44% per month but this can be higher depending on other factors such as your credit, income or the value and condition of your property - and this is clearly more expensive than a mortgage that would only cost around 1% to 3% for the entire year.”
“The industry is well regulated and bridging loan companies and brokers are reputable and good to deal with.”
“You just have to be careful and make sure that you can pay off your loan within the 3 to 24 months window. If you cannot clear the loan and the end of its term and you fall heavily behind on payments, you may be looking at refinancing under higher rates or repossession of your property as a worse case scenario.”
Do you require a bridging loan to move home? Get a free and impartial quote from Lending Expert today.