Bridging Loans have recently seen an upsurge in both popularity and take-up. Will they let you live a credit free life? Well, not quite, but the loan period is a short term one so worth a short discussion and overview. This is how bridging finance and loans work.
Let’s Consumers Buy Before They Sell
If you are on the mortgage ladder then you will probably be familiar with that feeling when you see another home that you want to buy, but can’t quite afford it as you’ve still not sold your existing property right? It’s a familiar scenario, and is exactly why bridging loans and finance have been devised for the UK housing market.
The premise is pretty simple really. For home owners and property developers that are stuck in a situation where their existing property has not yet sold, then bridging loan lenders will step in and offer short-term finance so they can complete the new purchase, and then pay the loan balance off once the old property gets sold. You can read typical terms and conditions for bridging finance on most lenders’ websites.
Bridging Loans Help Move the Chain Along
Many consumers in the UK now use bridging loans in this way where they can’t get shot of their old house quickly enough or are in a lengthy sales chain. This can sometimes mean that the new purchase is in danger of falling through and not completing… banks and classic mortgage lenders don’t tend to lend large amounts of money over short-terms agreements which is where a bridging loan or finance can help out.
In fact, bridging loans can sometimes be the only way in which keep the arrangement on track and are becoming very popular with property developers with large portfolios where they have a lack of cash assets, just property assets. You can read an excellent guide here to property finance basics which reveals a little bit of how the magic happens.
Be Aware of Bridging Loan Interest Rates
But before you jump head first into a bridging loan application please beware… as with any type of loan there of course is an interest agreement. But due to the short-term nature, size, and ways in which bridging loans are arranged, the interest rates will be extremely high. In fact, if you want to see for yourself how much you will end up paying back then you can use an online bridging loan calculator.
Now, what would happen if you did end up not being able to pay back your bridging loan? This can happen from time to time, particularly if the original house sale either falls through or takes longer to complete than expected. In the event of this happening, then bridging loans companies will start to kick in higher interest rates and fixed financial penalties. So in effect you could lose cash risk your property during the buying process, and even end up in huge money troubles. Is it really worth it? In my view, only for experience property developers and investors.
(Please note, if you are having financial problems then I recommend the Support Line).
What the Experts Say
Finance experts have say that bridging loans should not be taken out by people who are essentially attempting to beat property chain issues. With the UK property market having some serious issues over the last half a decade and with home loan banks pushing back on how much they will lend to consumers, numerous property deals are now failing to work out. Just bear that in mind.
My Conclusion on Bridging Finance
So to conclude, be careful when considering bridging loans as a way in which to buy property. Obviously the title of my blog post was a little tongue in cheek where I mention you can do it credit free, but many users of bridge finance do view it this way as the loan is so short. It goes without saying that you could risk losing your home using this strategy if everything goes wrong.
Is that a risk you want to take?