Bridging finance, also known as a bridging loan, is a type of short-term funding that helps bridge the financial gap when purchasing a new property while waiting to sell your current property. It provides temporary financing until the proceeds from the sale of your existing property become available.
Here's how it typically works:
Purchase of the new property: Let's say you find a new property you want to buy before selling your current property. You may not have enough funds to complete the purchase, so you apply for a bridging loan.
Assessment: The lender evaluates your financial situation, including the value of your existing property, the estimated sale price, and the potential timeframe for selling it. They may also consider your income, creditworthiness, and the value of the new property you're purchasing.
Loan approval: If your application is approved, the lender will provide you with the funds you need to buy the new property.
Repayment: The ‘Bridging loan’ is repaid in full when you sell your current property as the proceeds from the sale are used to repay the bridging loan. The remaining loan is referred to as either the ‘End Debt’ or ‘Residual Loan‘.
Bridging finance can be an option for homeowners who want to avoid the timing mismatch between buying and selling properties. It allows you to secure the new property and move in before selling your existing property. However, it's important to carefully consider the costs involved, including interest rates, fees, and any associated risks, as bridging finance can be relatively expensive compared to traditional mortgages. That’s why it’s important to discuss your requirements with a mortgage specialist before you attempt to hold two properties at one time to see if it is the right solution for your needs (and to establish if you qualify with a lender as only a handful of lenders work in this space)
