Here Is What You Should Know About Bridging Loans, and Why They Are So Important For 2023

A bridging loan is usually taken out to purchase a property whilst selling an existing property as it enables you to access large sums of money for a short period. They can be used for both personal and commercial clients.

Due to long chains with house purchases, there is often a gap between completion and sale dates in a chain, and bridging finance loans are used to access short-term cash to purchase the end property.

Not only can you use a bridge loan for a new property that you will live in, but they can also be good for property investors who want to build their property portfolio and complete homes quickly to secure the sale.

Many people purchase property and other assets at auctions and do not always have the cash ready to buy. By having a bridging loan in place before the auction, you can have peace of mind that if you win, you have the cash to complete the sale.

What are the different types of bridging loans?

There are two types of bridging loans available, an open bridging loan and a closed bridging loan. An open bridging loan is when an appropriate and agreed exit strategy is set, but the date of repayment is unknown: however, there still may be a final deadline by which the loan must be repaid.

A closed bridging loan has a final date in which the borrower must pay back the loan to the lender. A scenario of this will be if the bridge loan is agreed to be paid back based on a confirmed completion date on an existing property. You can see the pros and cons of both open and closed bridging loans here.

Why are bridging loans important right now?

Rightmove have released data on the fall of house prices coming into December, the UK has seen an average fall of 2.1% this month, that’s almost double the fall we saw last month (1.1%). This tells us that the UK is desperate to sell, this is likely due to soaring interest rates and energy prices, the more homes on the market, the harder it’ll be to sell a property straight away.

This is where a bridging loan can come in handy, it can allow you to make your purchase while house prices are low even when you are finding it difficult to sell your house to acquire the funds.