BRIDGING FINANCES
The use of bridging finance in the UK is becoming more and more common. A bridge loan is a type of short-term loan, typically taken out for a period of one to 12 months (but can be longer) pending the arrangement of longer-term financing. Bridge loans are typically more expensive than conventional mortgage pricing, to compensate for the additional potential risk attached.
The main uses of bridging finance are as follows:
-
If you are renovating or repairing a property, most banks will withhold lending until the work is complete. A bridge loan covers the cost of the work while it is in progress; subsequently a conventional mortgage repays the shorter-term finance.
-
Should the chain break on the property you intend to purchase, a bridge loan can be used to purchase a new home before you’ve sold your existing property. This means that a broken sales chain doesn’t have to signal the end of the deal.
-
Auction purchases usually have to be completed within 28 days, which doesn’t leave much time to arrange lending in the conventional way. A bridge loan can be used to complete on an auction property within the required timescale, and as with the other examples given here, would be replaced in the longer term by more conventional financial arrangements.