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Do you find yourself in the position of wanting to buy a new property like a home, but don’t know where to find enough money or resources because you’re still stuck with the mortgage for your old property? You might want to consider bridging your loans for this.
Bridging loans are a funding option to make a purchasing transaction possible before you clear the mortgage loan for your old property. This is becoming very popular today especially in an economy where it is the only option to keep the property purchase possible at all. However, this should only be a short-term option and never be treated like your “normal” mortgage loans because if not properly weighed out, this could make you end up in grave financial difficulty.
Assess your situation first very carefully before attempting to finalise bridging loans. This could leave you paying for two existing mortgage loans at once, the one for your new property and for the old one that you are putting on the market. If there are foreseeable or imminent problems in the property sale; be very careful because this method may just balloon up your debt.
Recently, there’s been a decline in the progress of the UK market and many mortgage lending companies are cutting their finance resulting to failure of property sales. If you are having a difficult time selling your property, a bridge loan may only lead to bigger debt due to high interest rates and places you in a worse financial condition than ever. If you have a fairly good credit and very certain that your sale has a good standing in the market, then a bridging loan might be right for you.
As mortgage lenders and private banks are making it more and more difficult for people to borrow in the current state of the property market, bridging loan lenders are becoming more of an option to property owners. Remember though that if you take out this kind of loan, a lender may want a cross-collateral. This means that both your old and new property may be taken for security. This can be risky especially if you’re not sure you can succeed at the sale of your old property or cannot get a mainstream mortgage to pay for your loans.
Also, consider the type of bridging loans you will take; it could be the closed bridge or the open bridge. The closed bridge is one where the old property is already exchanged on the market and available for a set timeframe. An open bridge is where your old property is not yet placed on the market, and thus no time limits are set. Some lenders would allow an open bridge loan for 12 months and renegotiate after that. Because of the uncertainty, this could be more difficult to process with banks asking more questions, and may require lots of equity as well.
Bridge loan lenders will ask for lots of details and proof that your property is actively on the market. They would also want to know if you have sufficient income to pay the interests. They will also be very specific as to what would be your exit strategy should your sale fall out during the borrowing period. All bridging loans will also have higher interest rates than your usual mortgage lending.
Most lenders have an arrangement fee of 0.5% to 1.5% per month of the value of the loan, and that could be as much as 18% per annum. Other than that, there could also be huge administration fees. And if you are really hard pressed to get the cash as fast as possible, there are specialist lenders that would be willing to put up a transaction but at a higher price as well. If you are not careful, you can be easily ripped off and risk losing not just one but two of your properties.
Cautious debt management should really be applied here, and all factors weighed in before finally deciding you’d want to take up a bridging loan. Make sure that you have access to methods of paying up for this loan, a viable exit strategy; this could be in the form of mainstream mortgage lending, a buy-to-let mortgage or a clean sale of your old property.