Bridging loans explained
If you're one of the millions of homeowners that likes nothing more than searching through property portals, then you may have come across a home you just have to have! How do you go about purchasing that dream property when you haven't begun the process of selling your home? A bridging loan could help.
The words asset-based lending - or bridging loan as its more commonly known - might send most of us into a glazed stupor, but it's worthwhile getting to grips with what it means, how it works and how such a loan could help you realise your dream - before you've sold your current home. The risky lending of the last couple of decades made sure that bridging loans received a bad press, including issues around higher interest rates and sky high arrangement fees, but we've come a long way since then.
Bridging loans are now enabling homeowners to secure their new property before they’ve, in some cases, put their own home on the market.
Bridging loans have become more popular as people’s lifestyle changes, for example older couples looking to move to accommodate elderly relatives or downsize, or people hoping to move to a home with additional accommodation.
Favourable niche lenders
Changes in the way we live, and move, have meant that niche lenders - those that provide asset-based lending or bridging loans - have had to develop innovative ways to lend money in order to compete with the bigger banks, and to make sure that their products are attractive to home owners. It's now common to see bridging loans with favourable terms, fees and deals developing, giving those with specific financial requirements more choice when it comes to borrowing.
The good news for consumers is that the niche lenders have a reputation to uphold, so asset-based lending finance options are robustly regulated.
Most bridging loan providers will lend purchasers up to 75% of the repayment vehicle. In some cases they may be able to borrow 100% of the property value, particularly if people are looking to downsize.
Bridging loans case study
Here’s a case study: a couple are looking to purchase a property in Cheshire, before they’ve sold their home in Birmingham. Their current home is valued at £950,000 with their new home valued at £785,000. They were able to secure a bridging loan of £650,000, leaving them to pay £135,000 upfront for their new home (and stamp duty). They were given 12 months in which to pay back the bridging loan, which would be paid from the sale of their current home.
Taking out any additional borrowing on your home comes with risks, so you should speak with an experienced mortgage broker, who will source the best deal for you.
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