Is it Safe to Buy a Home with a Bridging Loan?

For the vast majority of people, buying a home with anything but a conventional mortgage is out of the question. Mortgages enable buyers to spread the costs of owning a home over a series of monthly payments, usually for a period of between 10 and 30 years.

As bridging finance is designed to be repaid in full within a matter of months, it is not typically a viable option for first-time buyers. But for those who have already bought a home and are looking to relocate, bridging finance can be a surprisingly convenient, flexible and affordable option.

Capitalising on Time Critical Purchase Opportunities

If you are caught in a property chain or need to relocate at short notice for any reason, a bridging loan is worth considering. With bridging finance, the funds needed to complete the transaction are provided promptly, to be repaid to the lender a few months later when you sell your current home.

As the name indicates, it is a way of ‘bridging’ the temporary gap between buying your new home and selling your existing property. Rather than allowing the home of your dreams slip through your fingers, bridging finance makes it possible to leverage time-critical purchase opportunities at an affordable price.

According to Lending Expert founder David Beard, taking out a bridging loan gives you similar freedom to that of purchasing a property in cash.

“Using a bridging loan effectively makes you a cash buyer,” he said.

“Being a cash buyer can help you to complete a property deal much quicker, whether buying something off the market or at an auction. You do not get delayed by lengthy mortgage applications and bridging deals are usually completed in 2 to 4 weeks,”

“Your property is used as collateral or security, and your loan term is typically 3 to 24 months for you to resell your original home and clear your debt.”

A Lifeline for Struggling Sellers

Used in the right circumstances where prompt repayment is assured, bridging finance can offer a lifeline to those struggling to sell their homes. Just as long as the borrower has a viable and proven exit strategy, a bridging loan can also be surprisingly affordable.

“Yes, bridging loans are indeed safe for homeowners,” says Beard.

“If you are struggling to sell your home, or your buyer has pulled out and you are in a long property chain, using bridging can be used to access funds quickly and complete the deal fast,”

“They are a slightly more expensive form of finance because you are only using them for short-term purposes and because of the speed of funds,”

“Rates start at around 0.44% per month but this can be higher depending on other factors such as your credit, income or the value and condition of your property – and this is clearly more expensive than a mortgage that would only cost around 1% to 3% for the entire year.”

As with all short-term loan facilities, Mr Beard emphasised the importance of ensuring bridging finance is repaid promptly, in order to ensure a cost-effective transaction.

“You just have to be careful and make sure that you can pay off your loan within the 3 to 24 months window,” says Beard.

“If you cannot clear the loan and the end of its term and you fall heavily behind on payments, you may be looking at refinancing under higher rates or repossession of your property as a worst case scenario.”

Contact UK Bridging Loans to discuss options today.