Bridging Loan

When you buy and sell properties, always sell your existing house first before committing to buy a new house. If you can’t do this, a bank may lend you money to help you to buy the new house, before you have sold the old one. A Bridging Loan can be secured against commercial property, residential property, land, freehold and leasehold properties. Effectively the loan ‘bridges’ the gap. Bridging loans can be either ‘closed’ – where the sale of your old house has been legally contracted by exchange of contracts – or ‘open ended’ where it has not. Very few sales fall through after exchange, so lenders are happy to offer closed-bridge financing. Open ended-bridge financing will come under far more scrutiny from the bank and will require you to have a lot of equity in your current property.

Generally the lender will want proof your current property is on the market and usually will ask to see a copy of your mortgage offer for the new property. As Bridging loans are often high interest they also need to know that you can cover the interest payments and how you will settle the loan if the sale falls through. Normally a Bridging loan will be limited to a 12 month period. For obvious reasons, bridging loans should be avoided as they can be financially crippling, especially if open ended. Always take professional advice before considering a bridging loan.

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