Residential Mortgages - Commercial Mortgages - Bridging Loans - Secured Loans
Buy to Let Mortgages - Adverse Credit Mortgages - Mortgage Arrears

Bridging Loans

A bridging loan is a form of temporary finance most commonly associated with providing the funds to allow someone to purchase their new home when they have not yet sold their current home. In recent times and I believe partly due to the Internet people have turned to this phrase as a form of panic phrase.

We have received many enquiries for people who have entered "bridging loan" or similar into a search engine with a need for various types of finance. Here are some examples:

"We are looking for a bridging loan to clear our mortgage arrears to give us time for a new mortgage to complete".

"We are looking for a bridging loan to raise some capital due to clear pressing debts".

This section of the web site is designed to help you understand if a bridging loan is right for you or purely to try and encompass every type of bridging loan. The main sections are at the top with some more complex and unusual information and links lower down. You can click on the headings for expanded information.

Residential Bridging Loan - Generally used to purchase a new home when the current home has not sold. If there is no cash deposit but lots of equity in the current home 100% of the purchase price can be borrowed with the lender taking a second charge bridging loan on the current home until it is sold.

Commercial Bridging Loan - This can work in a similar way to above but with a company wanting to purchase commercial premises when they have not yet sold their current commercial premises.

Second Charge Bridging Loan - If someone wishes to capital raise temporarily against their home and they already have a mortgage, a second charge bridging loan can be arranged if there is sufficient equity, also the current mortgage lender will generally have to give consent for a second charge.

Open Bridging Loan - This means there is no certain exit route to redeem the bridging loan although there would need to be at least one solid way of redeeming the bridging loan, such as the sale of the property or a mortgage offer in principle.

Closed Bridging Loan - This is most commonly associated with the fact that you have exchanged contracts on the sale of the current home but you need to complete on the purchase of the new home before you complete on the sale of the current. A short gap in having the finance is covered by a closed bridging loan.

Speed of Completion - Many bridging loan companies boast completion in less than 5 working days. This is achievable but more realistically it takes two to three weeks to complete. If you would like to know what is involved and how to avoid delays please click on the heading of this paragraph for in depth information.

Non Status Bridging Loan - Most bridging loans are arranged on a non status basis, with the lender purely relying on the equity in the asset as security. The client can effectively be unemployed and have a seriously adverse credit rating as long as there is sufficient equity for the lender to feel safe that they will eventually be repaid. If a client is bankrupt a bridging loan can be arranged as long as the loan simultaneously clears the bankruptcy so the individual or company is discharged or annulled.

Bridging Loan Interest Roll Up - If you can't afford to service the monthly payments on a bridging loan then a certain amount of months interest can be added to the loan. As an example, if you wanted to borrow £100,000 and the interest rate was 1% per month (£1,000) six months interest could be rolled up and added to the bridging loan. Effectively you are then borrowing £106,000 and you are effectively paying interest on interest. If there is no minimum term on the loan and you only use 2 months of the 6 months rolled up the other 4 months interest is refunded.

Bridging Loans with daily or Monthly Interest Calculation- The interest can be calculated on a monthly or daily basis. One or two lenders have no minimum term and calculate interest daily. So if you only need the bridging loan for a day or two you will simply pay a couple of days interest plus set up costs. Some lenders have a three month minimum term and charge interest on a monthly basis, you could for example only need the money for two weeks and have to pay three months interest or you could have the money for three months and one day and have to pay four months interest.

Daylight Bridging Loan - This has become very popular recently. It allows someone to purchase a property against valuation if the purchase price is considerably lower. The bridging loan company will lend off valuation whereas a mortgage company will not. The bridging loan completes against valuation and then usually the same day or within days the bridging loan is redeemed with a remortgage.

Bridging Loan Costs - Each lender has their own criteria and costs but "in the wash" the more competitive lenders all come out about the same. One might not have an arrangement fee but be slightly more expensive in monthly interest payments and another might have an arrangement fee but a lower interest rate. With all lenders you are responsible for their legal fees as well as your own, there may also be exit fees and a minimum term. Also if you default on the loan in any way you may be charged a default rate of interest which can be double the standard rate. Defaulting can include being late with the monthly payment or not being able to redeem the loan by the end of the agreed term.

Bridging Loan Maximum Loan to Value - With closed bridging loans it is possible to borrow up to 85% loan to value. With open bridging loans the loan to value is likely to be capped at 80% and you may have to prove that you can service the loan at this level or have a certain amount of months payments deducted. If the bridging loan is on a second charge basis the loan to value will be reduced further as the lender has less control and less security.

Valuation Requirements and Criteria - All lenders will want some form of valuation. On rare occasions if say you only want to borrow £30,000 and the property is worth £500,000 a lender may just accept it is such a small risk they will accept an estate agents valuation or ask for a surveyors"drive-by" valuation. If you are looking to borrow the maximum amount it is important to ask if the lender works of the open market value being the maximum value or if they work off the 90 day valuation, which is a valuation based on achieving a quick sale with completion guaranteed within 90 days.