However, there\nmay be times when your funds are tied up \u2013 most likely in an existing property\nwhich is yet to sell \u2013 and will not be available until after your purchase of a\nnew property is due to go ahead. Enter the bridging loan. <\/p>\n\n\n\n
What is a bridging loan?<\/strong><\/h3>\n\n\n\nQuite simply, a\nbridging loan is a short-term loan (generally issued on a 12-month basis) which\nis used to purchase a property. As the name suggests, the loan \u2018bridges the\ngap\u2019 between the time that you purchase the property and the time that you have\nsufficient funding in place to cover the costs of the sale, such as when you\nsell your current home. <\/p>\n\n\n\n
The appeal of a\nbridging loan is that it can be arranged more quickly than other loans \u2013 often\nin a matter of days \u2013 and has the added advantage of demonstrating to your\nvendor that you are a serious buyer even if there have been delays in selling\nyour own property.<\/p>\n\n\n\n
However, a\nbridging loan is a secured loan, which means the lender will want to secure an\nasset against the loan \u2013 usually your property \u2013 which they can then claim to\nrecoup their losses if the loan is not repaid, leaving you at risk of losing\nyour home if circumstances change and you cannot repay the loan. <\/p>\n\n\n\n
So, when might you need a bridging loan? <\/strong><\/h3>\n\n\n\nAs noted above, the most common reason to take out a bridging loan is if you are waiting for your own property to sell, but this is having an impact on your next property purchase which means you might lose out. <\/p>\n\n\n\n![\"\"](\"https:\/\/www.yopa.co.uk\/homeowners-hub\/wp-content\/uploads\/2020\/09\/quaint-cottage-768x1024.jpg\")
<\/figure>\n\n\n\nIf you have\nyour eye on that dream property which tick all the boxes and, wonder of\nwonders, even falls within budget, then chances are that it will also appeal to\nother buyers. Whilst the housing market may not be moving quite so quickly as\nit was in the post-lockdown housing boom of 2020-2022, if you don\u2019t have all of\nyour ducks in a row and your funds in place ready to make the purchase then any\noffer<\/a> you make is\nunlikely to be accepted by the vendor. Especially if there are other interested\nbuyers ready and able to proceed with the property purchase. If you are in the\nmidst of a buying chain, and someone further down the chain pulls out, this can\nalso jeopardise your own sale. <\/p>\n\n\n\nEqually, if you\nhave had a bad experience of a housing chain before and want to avoid<\/a> the headache this\ntime round, you are buying a property via auction and need the funds in place\nfor a specific date, or you are purchasing a property which is not eligible for\na mortgage (because it is in a bad state of repair for instance) then a\nbridging loan may be the answer.<\/p>\n\n\n\nSo how do you arrange a bridging loan?<\/strong><\/h3>\n\n\n\nBefore the 2008\nfinancial crash, most high street banks offered bridging loans. Whilst Lloyd\u2019s Bank<\/a> does still\noffer this facility, these days you will generally need to speak to a\nspecialist lender or building society to access a bridging loan so it helps to\nspeak to a financial advisor to help you find the best deal for your\ncircumstances. <\/p>\n\n\n\nBridging loans\nare usually issued as either a closed bridge loan<\/strong> or an open bridge\nloan<\/strong>. A closed bridge loan will include a fixed date by which you need to repay\nyour loan. Say for instance the completion date for selling your current\nproperty. An open bridge loan does not include a set date for repaying the\nloan, but the usual expectation is that you would have paid it off within one\nto two years. An open bridge loan would be a better option if you have found a\nproperty you would like to buy, but you don\u2019t have a buyer in place yet for\nyour own property. <\/p>\n\n\n\nThere may also\nbe instances where a friend or relative is able to offer you a bridging loan. In\nthis instance you should still always seek legal advice to draft up a formal\ncontract which includes clear repayment terms so that both parties know where\nthey stand. <\/p>\n\n\n\n
You should also\nbear in mind that due to the potential risks involved and the speed and\nconvenience with which they can be arranged, bridging loans usually attract\nmuch higher rates of interest and arrangement fees than other loans. Based on\ncurrent interest rates, the annual interest rate for a bridging loan could cost\nyou around 20%, which must be paid back on top of the loan amount. This is in\ncomparison to around 6.66%<\/a> for mortgage interest. <\/p>\n\n\n\nGiven these\nhigh costs and the inherent risk of borrowing money which is secured against\nyour property, a bridging loan should not be entered into lightly unless you\nhave a good degree of certainty that your property sale (and purchase) will go\nahead within a specific timeframe and that the value of your property is\nunlikely to fall significantly below the value of the loan you have taken out. As\nsuch, unless you have exchanged contracts on the house you are selling and<\/em> the house you are buying, it makes\nsense to look at alternative options. <\/p>\n\n\n\nWhat are the alternatives to a bridging loan?<\/strong><\/h3>\n\n\n\nIf a bridging loan isn\u2019t the right option for you and a mortgage (or remortgage) loan isn\u2019t possible, there are other options when it comes to funding your property purchase. <\/p>\n\n\n
\n \n \n \n \n ![\"\"](\"https:\/\/dy36-2.stage.yopa-dev.co.uk\/homeowners-hub\/wp-content\/themes\/yopa\/assets\/images\/icon-house.svg\")
<\/div>\n \n \n Instant online valuation<\/span> <\/div>\n \n Get a rough estimate of your home's value now.<\/p> <\/div>\n <\/div>\n<\/div>\n <\/a>\n <\/div>\n
\n \n \n \n ![\"\"](\"https:\/\/dy36-2.stage.yopa-dev.co.uk\/homeowners-hub\/wp-content\/themes\/yopa\/assets\/images\/icon-currency.svg\")
<\/div>\n \n \n Face-to-face valuation<\/span> <\/div>\n \n Book an appointment with your local Yopa agent.<\/p> <\/div>\n <\/div>\n<\/div>\n <\/a>\n <\/div>\n<\/div>\n\n\n\n\n
If you are in\nthe process of selling an existing property and need the money fairly quickly\nfor your next property purchase, a homeowner loan<\/a> might be a\nbetter option since it can be paid back over a much longer period of around 35\nyears and can be transferred to your new property. However, much like a bridging\nloan, a homeowner loan is still secured against your home so there is the risk\nof your property being seized if you do not keep up with repayments.<\/p>\n\n\n\nIf you are at\nthe beginning of your property purchase journey, you may choose to make a\nproperty purchase with your family if you know that you aren\u2019t going to be able\nto achieve the kind of mortgage loan that you need on your own for the property\nyou wish to purchase. For more details on how to go about doing so, along with\nany potential pitfalls you may need to consider, check out our article entitled\nCan you buy a\nproperty with family members?<\/em><\/a> <\/p>\n\n\n\nEqually, you\ncould purchase a property with a friend, which can be a savvy way to find the\nequity you both need to buy the right property for you in an area that is\ndesirable. Our article If you are a\nco-owner of a property, what are your rights?<\/em><\/a> provides guidance\non how to buy a property as a co-owner, the differences between co-owning as \u2018beneficial\njoint tenants\u2019 and \u2018tenants in common\u2019 and what happens we you decide to sell a\nco-owned property in future.<\/p>\n\n\n\nAlternatively,\nthere is also the option of shared\nownership<\/a>,\nwhich is particularly popular with solo buyers since it means a much smaller\ndeposit and mortgage and will generally give you the flexibility to increase\nthe percentage of the property you own over time as circumstances allow. <\/p>\n\n\n\n
As noted above, the most common reason to take out a bridging loan is if you are waiting for your own property to sell, but this is having an impact on your next property purchase which means you might lose out. <\/p>\n\n\n\n If you have\nyour eye on that dream property which tick all the boxes and, wonder of\nwonders, even falls within budget, then chances are that it will also appeal to\nother buyers. Whilst the housing market may not be moving quite so quickly as\nit was in the post-lockdown housing boom of 2020-2022, if you don\u2019t have all of\nyour ducks in a row and your funds in place ready to make the purchase then any\noffer<\/a> you make is\nunlikely to be accepted by the vendor. Especially if there are other interested\nbuyers ready and able to proceed with the property purchase. If you are in the\nmidst of a buying chain, and someone further down the chain pulls out, this can\nalso jeopardise your own sale. <\/p>\n\n\n\n Equally, if you\nhave had a bad experience of a housing chain before and want to avoid<\/a> the headache this\ntime round, you are buying a property via auction and need the funds in place\nfor a specific date, or you are purchasing a property which is not eligible for\na mortgage (because it is in a bad state of repair for instance) then a\nbridging loan may be the answer.<\/p>\n\n\n\n Before the 2008\nfinancial crash, most high street banks offered bridging loans. Whilst Lloyd\u2019s Bank<\/a> does still\noffer this facility, these days you will generally need to speak to a\nspecialist lender or building society to access a bridging loan so it helps to\nspeak to a financial advisor to help you find the best deal for your\ncircumstances. <\/p>\n\n\n\n Bridging loans\nare usually issued as either a closed bridge loan<\/strong> or an open bridge\nloan<\/strong>. A closed bridge loan will include a fixed date by which you need to repay\nyour loan. Say for instance the completion date for selling your current\nproperty. An open bridge loan does not include a set date for repaying the\nloan, but the usual expectation is that you would have paid it off within one\nto two years. An open bridge loan would be a better option if you have found a\nproperty you would like to buy, but you don\u2019t have a buyer in place yet for\nyour own property. <\/p>\n\n\n\n There may also\nbe instances where a friend or relative is able to offer you a bridging loan. In\nthis instance you should still always seek legal advice to draft up a formal\ncontract which includes clear repayment terms so that both parties know where\nthey stand. <\/p>\n\n\n\n You should also\nbear in mind that due to the potential risks involved and the speed and\nconvenience with which they can be arranged, bridging loans usually attract\nmuch higher rates of interest and arrangement fees than other loans. Based on\ncurrent interest rates, the annual interest rate for a bridging loan could cost\nyou around 20%, which must be paid back on top of the loan amount. This is in\ncomparison to around 6.66%<\/a> for mortgage interest. <\/p>\n\n\n\n Given these\nhigh costs and the inherent risk of borrowing money which is secured against\nyour property, a bridging loan should not be entered into lightly unless you\nhave a good degree of certainty that your property sale (and purchase) will go\nahead within a specific timeframe and that the value of your property is\nunlikely to fall significantly below the value of the loan you have taken out. As\nsuch, unless you have exchanged contracts on the house you are selling and<\/em> the house you are buying, it makes\nsense to look at alternative options. <\/p>\n\n\n\n If a bridging loan isn\u2019t the right option for you and a mortgage (or remortgage) loan isn\u2019t possible, there are other options when it comes to funding your property purchase. <\/p>\n\n\n Get a rough estimate of your home's value now.<\/p> <\/div>\n <\/div>\n<\/div>\n <\/a>\n <\/div>\n Book an appointment with your local Yopa agent.<\/p> <\/div>\n <\/div>\n<\/div>\n <\/a>\n <\/div>\n<\/div>\n\n\n\n\n If you are in\nthe process of selling an existing property and need the money fairly quickly\nfor your next property purchase, a homeowner loan<\/a> might be a\nbetter option since it can be paid back over a much longer period of around 35\nyears and can be transferred to your new property. However, much like a bridging\nloan, a homeowner loan is still secured against your home so there is the risk\nof your property being seized if you do not keep up with repayments.<\/p>\n\n\n\n If you are at\nthe beginning of your property purchase journey, you may choose to make a\nproperty purchase with your family if you know that you aren\u2019t going to be able\nto achieve the kind of mortgage loan that you need on your own for the property\nyou wish to purchase. For more details on how to go about doing so, along with\nany potential pitfalls you may need to consider, check out our article entitled\nCan you buy a\nproperty with family members?<\/em><\/a> <\/p>\n\n\n\n Equally, you\ncould purchase a property with a friend, which can be a savvy way to find the\nequity you both need to buy the right property for you in an area that is\ndesirable. Our article If you are a\nco-owner of a property, what are your rights?<\/em><\/a> provides guidance\non how to buy a property as a co-owner, the differences between co-owning as \u2018beneficial\njoint tenants\u2019 and \u2018tenants in common\u2019 and what happens we you decide to sell a\nco-owned property in future.<\/p>\n\n\n\n Alternatively,\nthere is also the option of shared\nownership<\/a>,\nwhich is particularly popular with solo buyers since it means a much smaller\ndeposit and mortgage and will generally give you the flexibility to increase\nthe percentage of the property you own over time as circumstances allow. <\/p>\n\n\n\n<\/figure>\n\n\n\nSo how do you arrange a bridging loan?<\/strong><\/h3>\n\n\n\n
What are the alternatives to a bridging loan?<\/strong><\/h3>\n\n\n\n
<\/div>\n <\/div>\n