In short, a bridge loan is used to finance the purchase of a new investment property before the sale of an existing property is completed. A bridge loan is typically applied to properties experiencing delays in selling their current property, such as being sold during a period of low demand or stuck in a chain of properties.
How does a bridge loan work?
A bridge loan is a short-term loan used to finance the purchase of a new investment property before the old one is sold. You can repay the bridge loan in full by selling the old property at the end of the agreed-upon terms, so you won’t have to pay regular monthly payments.
Getting a bridge loan to purchase an investment property
In order to finance the purchase of an investment property, a bridge loan is a short-term loan. Typically, this loan is used by buyers who are approved for a buy to let mortgage but have yet to close on the sale of the property. The buyer can complete the purchase and take possession while the mortgage is processed by taking out a bridge loan. The bridge loan is paid off in full when the mortgage is completed.
Many companies offer bridge loans. You can find hundreds of results on Google when searching for bridge loans. Many of these will be brokers rather than direct lenders, so keep that in mind.
Brokers are intermediaries between property buyers and lenders who provide the funds for the purchase. By engaging a broker, you are more likely to;
Repaying a bridge loan in the best possible way
Typically, loans are granted for a duration of 6 to 12 months. However, some lenders may offer the option to extend the loan term and create a new deal as required.
The loan is repaid with the proceeds from the sale of the old investment property along with any fees and interest.
Bridge loans: Are they a good idea?
If you’re thinking about buying a new investment property before selling your old one, you might want to look into getting a bridge loan. Bridge loans can be used for various business purposes so they might come in handy depending on your situation.
A bridge loan can be classified into two types:
Closed bridging loans
Closed bridge loans are used to finance the purchase of an investment property before the sale of an existing property is complete. The loan is used to cover the difference between the new property’s purchase price and the old one’s sale price. Closed bridge loans are used when there is a delay in selling an existing property, such as when an investment property is being marketed for sale but hasn’t yet been sold.
Open bridging loans
Bridge loans do not have a fixed repayment date, making them attractive to borrowers uncertain about when they will be able to obtain financing. However, lenders charge a higher interest rate for this bridging loan due to the uncertainty of repayment.
First- and second-charge bridging loans are what?
A first charge loan is a loan secured by the property being sold. Borrowers take out second-charge loans against the property they intend to purchase.
With a bridge loan, how much can you borrow?
There are several factors that determine how much you can borrow, including the lender’s requirements and the value of your old and new investments.
In order to qualify for a bridging loan, what are the requirements?
Borrowers with investment properties or tangible assets that have enough equity may qualify for bridging loans.
In the UK, where can I get a bridge loan?
There are many places in the United Kingdom where you can get a bridge loan. Bridge Direct is one of the most popular. The Bridge Direct team has more than 30 years of experience in mortgages and bridging. They are direct lenders instead of brokers, meaning they have direct funding access.
Bridge Direct is a direct lender that offers free instant decisions on all applications. Even if you have bad credit, Bridge Direct will consider your application.