In this article, we explain the different circumstances where bridging loans might be necessary.
If you are considering a bridging loan, it pays to consult a professional adviser as well as discuss this with your solicitor who is handling your Conveyancing Gloucester way such as https://www.deeandgriffin.co.uk/services/conveyancing/
Keeping a place in a chain
When the purchase of a property is funded out of the proceeds of another property’s sale, but the sale can’t be completed at the same time as, or before, the purchase, you might need bridging finance.
Renovating, converting or restoring properties
Frequently, property is deemed to be unsuitable for a mortgage. This is generally due to poor condition, or because the property lacks a bathroom or kitchen. Bridging finance may be secured against such property. This helps landlords who want to renovate and then sell or rent out properties.
Buying an auction property
If you win at auction, a 10 per cent deposit is typically paid that day, with the remainder of the money due within 28 days. Bridging loans can be put in place quickly, guaranteeing that sales can complete in time.
Solving short-term cash-flow problems
Cash-flow problems can occur for various reasons in business. A bank might call in your overdraft facility, customers may pay invoices late, or brand new equipment may be required unexpectedly.
How open and closed bridging loans differ
Many of the main mortgage lenders now see bridging loans as high risk. Their concern is that a borrower could be left with a large debt if the sale of their existing home falls through, and the loan can almost take the place of a deposit. Some lenders do still offer them, and good legal advice is essential to make sure the transaction is sound.
One of the most common reasons for taking a bridging loan today is buying a property at auction, where the money has to be found quickly and a normal mortgage may not be ready in time.
There are generally two types. A closed bridging loan has a fixed repayment date that must be met, which suits buyers whose sale is already agreed. An open bridging loan has no set end date, although repayment plans usually see it cleared within a year or a little over. That flexibility can help, but it also means carrying the cost for longer.