How to use a bridging loan

Bridging loans are shot-term loans which are meant to help people in a temporary difficult cash flow situation. They can be used to help fund businesses and those buying property. Typically they are used to fill a gap or bridge a deficit in funds if the sale of one property does not neatly dovetail with the purchase of another. This can involve the remortgage of the property owned and being sold – usually to around 65% of its value less any outstanding mortgage – in order to fund the purchase of a new property.

As the time scales involved in these circumstances can be tight, funds are usually made available as quickly as possible – maybe as soon as a week after the application and a valuation has been done on both properties. Bridging loans are only short term solutions, and they are less secure for a lender, so interest rates tend to be much higher to reflect the circumstances. They are much higher than regular mortgage rates. It is important, therefore, that anyone considering a bridging loan should only do so if the sale of their originally owned property is unlikely to go beyond a few months. The interest rate that is finally charged will depend upon on your own personal circumstances and the amount borrowed and of course, it will vary from lender to lender.

The term of a bridging loan is agreed prior to lending, but the period can be extended if required. Lenders therefore tend to charge interest on a percent per month basis: the longer the term of the loan, the higher the interest you will have to pay. Nowadays, of course, there is highly likely to be an arrangement fee which can be fairly significant.

If you stand in a position where contracts for both properties have been exchanged and you are only waiting for funds to be transferred, then you can get a closed bridging loan. These are better for both lenders and borrowers alike as the risks attached are lower as fewer sales fall through once they have reached this stage. Closed bridging loans, therefore, usually attract lower interest rates. If you are fairly sure that completion will occur in a set short period of time – say a month – then you would be better off choosing a closed bridging loan with a low arrangement fee (and possibly a higher interest rate) as you won’t be paying interest for very long.

Open bridge loans usually have a higher rate of interest. This type of loan occurs when an offer has been made on a property before the current property has been put up for sale. The risk attached to these sort of loans is higher as they have more chance of falling through, and they tend to run over a longer period too. A company offering a lower interest rate would be preferable.

Ideally you will have a strategy in place that will cover the possibility that either the sale or purchase of one property may fall through. You will certainly need funds to cover the interest payments for the duration of the bridging loan, and you should be confident that both sales will go through to completion in fairly short time – certainly within six months. So long as you have all bases covered, bridging loans can be a very convenient way of closing the fund gap between the purchase of one property and the sale of another.

One company offering bridging loans can be found at spencerrayner.co.uk. They cover all areas of the UK, Northern Ireland, and Scotland, and are able to arrange competitive bridging facilities through their network of lenders. Their lenders will look at all types of security, whether it be licensed premises, office block, land or residential properties.

Bridging Finance is commonly used for the following reasons:

• Purchasing property at auction
• Property refurbishment or conversion
• Chain-breaking mortgage
• Purchasing property where the surveyor recommends a retention
• To help homeowners who have been or are about to be repossessed
• To stop bankruptcy
• When funds are required within days rather than weeks
• Spencer Rayner has a varied panel of Bridging Finance Lenders to arrange competitive quotes for clients and offer a wide range of products to suit all lending requirements.

They offer bridging loans from £25,500 to £10m over periods of one month to 26 months. They even say they will accept non-status funding (i.e. adverse credit), and can offer 100% loan-to-value. They can also do self-cert mortgages, without accounts or proof of income. Completion of the funding, they claim, can be achieved with two to ten days – as long as all information is supplied.

Spencer Rayner have over 18 years experience within the Financial Industry. Their range of products includes first-time buyers, Mortgages, Remortgages, 125% mortgages, Right to Buy, Buy to Let, Secured Loans, Bridging finance and Commercial Lending.