Independent financial consultant Mike Collins explains why a bridging loan can be a handy prospect
With property chains still flagging after the pandemic, you may be keen to buy your new house.
But what if your mortgage offer is due to expire? With interest rates sky high, you might end up paying much more than you want to on your monthly payment if your offer ends up running out.
If you’re fearing the worst – that you might lose your dream home – there is something you can consider.
What’s a bridging loan?
An interest-only bridging loan can be used where you need access to funds immediately. It’s a good short-term cash answer to help you fill the gap between selling your home and buying your onward purchase.
Perhaps you want to buy a property at auction and need funds upright. A bridging loan could help here too.
Mike Collins, who has 17 years’ experience in financial planning, said: “Delays are inevitable at the moment but there is definitely a sign of shorter times ahead from sale of your existing home and completion of your new.
“A bridging loan can be particularly helpful in situations like these, but it is important to note that interest rates are much higher on these. They can be paid back over a few short months now which could be the difference between you managing too grasp or losing your dream home.”
Interest rate for bridging loans
When it comes to bridging loans you could pick a fixed interest rate which is best if you like to know exactly what you’ve got to pay out each month.
Whilst the Bank of England is ever-increasing its base rate, a variable loan is not your friend just now.
The type of loan you choose will also determine the interest rate. It can vary depending on the length of loan you want but terms are only for up to a year.
Access to cash immediately
If you need your hands on the money quickly, bridging loans are fast to arrange – much more so that mortgages or other forms of secured loans.
You could expect to see funds released in as few as three days. This sets bridging loans apart from other financial products.
Ultimately the best way to get a bridging loan is to have a great exit strategy. If you can prove you can pay the loan back when the term ends, you’re onto a winner.
No worries about bad credit
As many financial products, your credit rating signifies the rate on your bridging loan. If you do have other loans or credit card debt, it’s good to know that lenders to place emphasis on the property value related to the loan rather than your credit score alone.
You can find out fairly quickly whether you qualify too as there is not a big list of checks. The loan is secured against a valuable asset.
Fix a broken chain
If you’re in a broken property chain, bridging loans are a good means to purchase a property which otherwise might seem impossible.
However, it’s worth remembering that interest rates are the highest they’ve been for years, so you’d need to really do your research or talk to a financial advisor about your options.
These loans can be deemed lifesavers for buyers and property developers.
Just ensure you pick a lender that is accredited by the Financial Conduct Authority (FCA).