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Bridging Finance - A Short Term Loan

Apr 26, 2008
If you have ever considered buying a property at auction then you may wonder how you can go about financing this. Bridging finance can be very useful if you need to complete a property transaction before the funds have become available from another source, such as from the sale of a property or from taking out a standard mortgage.

Bridging finance loans are generally more expensive and are usually considered to be a last resort type of borrowing. However, if a bridging loan can tide you over for a short while whilst you are waiting for other finances, then they can be worthwhile as they will save you from losing any money that you have currently spent on the purchase. These loans are typically available to residents of the UK that are over the age of 18. Applications for bridging finance can be completed easily and with minimal stress and can often be done online. This type of loan is generally considered as a short-term solution loan and is in the main paid back within a year when alternative funds have been released. You should only consider taking out bridging finance if you can repay it fairly quickly as they can be expensive due to the relatively high interest rates.

Two types of bridging loan exist that are generally available, these are closed bridging and open bridging. With closed bridging finance a date is agreed for when the bridging loan will end and you are confident that the loan can be paid back within this timeframe. Interest rates for a closed bridging loan will be low (compared to open bridging rates) to reflect the reduced risk for the lender as a payment date has been agreed. Open bridging loans are considered to hold more of a risk for the lender as there is no date agreed for when the loan will be paid back. Consequently the interest rates for this type are higher.

If the property that you are purchasing is a residential property then you will find that a residential bridging loan is going to be the most applicable to you as this type of loan applies to borrowers intending to buy a residential property to live in themselves and where the bridging loan is used as security in some way on an own occupied residential property.

Commercial bridging loans are designed for borrowers whereby the loan that is needed is for an investment property, for example a Buy-to-Let loan or for a property developer bridging loan or in combination with the acquisition of an office, business or commercial premises.

Bridging finance is generally secured on a property. You may find that a single charge made on an already existing property is all that is needed to fund the purchase. Obviously every lender has their own criteria for how much they will lend you but some will be able to set you up a bridging loan for more than others based onf the valuation of the collective properties minus any existing mortgages that there may be on those properties.
About the Author
Sean Horton is a Director of Enhanced Wealth, a whole of market mortgage broker and IFA specialising in mortgage advice and the associated areas of income protection, mortgage protection, life cover and bridging finance.
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