Bridging Loan

The Ultimate Guide to Getting a Bridging Loan

If you need to access funds quickly, bridging finance could be the solution. In this guide, we'll walk you through the steps you need to take to secure bridging finance.

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Mortgage & Protection Director
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Published:
August 27, 2021
Updated:
April 4, 2022

Bridging loans, or "bridge loans", aren't quite as delightful as a bridge over tranquil waters, but they're nearly as handy in the world of finance. These short-term loans are like turbo-charged mortgages designed to "bridge" financing gaps.

They're typically used in real estate to cover the period between buying a new house and selling an old one, or to rescue ambitious developers from cash flow quagmires. Sounds nifty, right? But hold on to your calculators, folks, because these loans often come with higher interests rates due to their short-term, high-speed nature.

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Why consider a Bridging Loan?

Indeed, why should anyone entertain the notion of a high-interest, short-term loan like a bridging loan? Well, my financially astute friends, sometimes in the world of property wheeling and dealing, speed is of the essence. Bridging loans can be arranged far more quickly than regular mortgages, which can give buyers the edge in a hot property market.

Also, they can be a lifeline for those caught in the sticky "chain" situation, where the sale of your existing home is crucial to finance your new dream house. It's a bit like financial wizardry—minus the pointy hat and wand.

Definition and Types of Bridging Loans

So, what exactly are these magical bridging loans we've been nattering about? Let's peel back the curtain, shall we?

A bridging loan is a short-term funding solution that you can get from many a financial institution. Picture it like a tiny, speedy mortgage that has gone on a diet, shedding years of repayments to be as nimble as a financial gazelle. They usually last between a quick-as-a-flash 1 month to a more leisurely 2 years.

Now, on to types. There are two main kinds of bridging loans.

  1. Open Bridging Loans:
    These are the daredevils of the bridging loan world. They have no set repayment date, but are usually paid off within a year. Ideal if you're uncertain about when funds to repay will become available—flexibility is their middle name.
  2. Closed Bridging Loans:
    These are the tortoises to the open bridging loan hare. Steady and predictable, they have a fixed repayment date, typically when you know exactly when funds will be available. Perfect for when you've sold your house, but are waiting for the cheque to clear.

Remember, with great power comes great responsibility. Bridging loans can be a fantastic tool in your financial arsenal, but make sure you understand the risks and costs before diving in headfirst.

How Do Bridging Loans Work?

Let's delve into the mechanics of these financial wonder widgets. Think of a bridging loan as a sort of safety net strung beneath your property transaction high-wire act. It's designed to catch you if there's a gap between the sale of your existing property and the purchase of your new one. Here's how it works in a nutshell:

After your loan is approved, you'll receive the funds, which you can use to secure your new property.

Meanwhile, your existing property is on the market. Once it's sold, you repay the loan. If your property sells faster than a hot scone at a village fete, splendid—you can repay the loan sooner and save on interest!

But if it sells slower than treacle in January, no worries, the loan is there to bridge the gap.

Remember though, while bridging loans are as handy as a pocket on a shirt, they can also be as risky as a cricket match in a thunderstorm if your property doesn't sell within the loan period. Tread wisely, financial adventurers!

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Case Studies: When Is a Bridging Loan Useful?

Let's navigate through the financial fog with a couple of real-world examples, shall we?

Case Study 1: Fast-Moving Property Market
Picture this: You're a property enthusiast, and you've just found the house of your dreams in a sizzling hot property market where properties sell quicker than hot cakes at a school fair.

But, there's a snag. You haven't sold your existing home yet. In this scenario, a bridging loan could be your financial superhero, swooping in to provide the funds you need to nab that dream home before someone else does.


Case Study 2: The Sticky "Chain" Situation
Imagine this: You've sold your house (hooray!). The next step? Buying your new home. But wait, the buyer for your old home has just pulled out at the last minute. Oh no! With a bridging loan, this hiccup is just that—a hiccup. The loan bridges the gap, allowing you to proceed with the purchase of your new home while you find a new buyer for your old one.

In each of these cases, the bridging loan comes to the rescue, acting as a financial safety net and enabling property transactions to progress smoothly. But remember, like a potent spell, it should be used wisely and cautiously.

Common Misconceptions About Bridging Loans

Pardon the pun, but let's bridge the gap between fact and fiction, shall we? When it comes to bridging loans, there's often a bit of fog covering the truth. So, allow me to be your financial lighthouse, guiding you safely through these murky waters.

Misconception 1: "Bridging Loans Are Only for Desperate Borrowers"

This is as wrong as a three-legged donkey in a horse race! Bridging loans can be a strategic tool used by savvy borrowers to navigate the property market. They're not a last-ditch effort, but a calculated manoeuvre for those who know how to play the game.

Misconception 2: "Bridging Loans Are Too Expensive"

While it's true that bridging loans can carry higher interest rates than other loan types, they're not necessarily the bank-breaking beasts some make them out to be. Remember, they're short-term loans, meaning you're not tied down for a long haul. The key is to pay back the loan as quickly as possible.

Misconception 3: "Bridging Loans Are Complex and Hard to Get"

Picture this misconception as a 1000-piece puzzle. Yes, it may look intimidating at first, but once you start placing the pieces together, it's not that scary. With the right advice and a good understanding of your financial situation, securing a bridging loan could be as easy as nailing jelly to a wall.


So, there you have it. A few common misconceptions about bridging loans, debunked. Remember, in the world of finance, knowledge is power, and a good understanding of your options can be as refreshing as a cup of tea on a dreary British afternoon.

The Application Process

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How to apply for a bridging loan?

Applying for a bridging loan through Hello Mortgage? It's as easy as a Victoria sponge recipe, so let's slice through it:

Step 1: Initial Consultation

First, we'll have a chinwag to understand your needs. We'll ask about your financial situation, your property, and your repayment plan. Don't worry, it's not a grilling—just a friendly chat to ensure we're on the right track.


Step 2: Application Submission

Next, we'll collect all the necessary documents—think of it as gathering ingredients for our financial cake. We'll then whip up your application and submit it to the lender that best suits your needs.

Step 3: Property Valuation

We'll arrange for the lender's surveyor to value your property. It's like a baker checking the quality of his flour—essential to ensure the final product rises perfectly.

Step 4: Legal Work

Once the valuation is satisfactory, the lender's solicitors will get to work. They'll scrutinise the legalities, making sure everything is above board. It's akin to checking the oven temperature before the cake goes in.

Step 5: Loan Approval

If everything checks out, the lender will approve the loan, and the funds will be released. It's the moment when the cake finally emerges from the oven, golden and perfect.

And voila! You've successfully applied for a bridging loan through Hello Mortgage. Remember, we're here to help you navigate the process, so don't be shy about asking questions. It's always tea time here, so put the kettle on, and let's get started!

Documents Required for the Application

When embarking on this financial adventure, you wouldn't leave home without your map and compass, right? Consider these documents as your navigational tools:

Document 1: Proof of Identity
Pack your passport or driving licence to prove you are who you say you are. It's a bit like showing the bouncer your ID at the pub—no ID, no entry!

Document 2: Proof of Address
A utility bill or bank statement from the last three months should do the trick. It's your ticket to the property market party.

Document 3: Proof of Income
This could be wage slips, bank statements, or tax returns. Think of it as your VIP status in the financing world—showing you can handle the repayments.

Document 4: Details of the Property
You'll need information on the property you're buying and selling, like the address and the agreed sale price. It's like having the coordinates for your property market journey.

Document 5: Repayment Plan
This outlines how you intend to repay the loan—maybe from the sale of a property or another form of finance. It's your roadmap, guiding your lender through your repayment strategy.

So there you have it, your financial expedition kit. Gather these documents, and you're ready to set off on your bridging loan adventure! Remember, it's better to be over-prepared than under—don't forget to pack your financial first aid kit.

Understanding Loan Terms and Repayment

Let's now turn our attention to understanding the loan terms and repayment schedule. Think of it as learning the steps to a new dance—you need to know when to twirl and when to dip. In the same vein, it's vital to understand when and how much you need to repay.

Loan Term:
The loan term is simply the length of your loan, typically expressed in months or years. It's like the duration of a cricket match—some are over quickly (like a T20 game), while others can stretch on for a bit (a la Test cricket).

Repayment Schedule:
This is the timetable for paying back your loan. It's like the interval signals in a theatre production—you need to know when it's your cue to pay up. Full repayment is usually expected at the end of the term, but some lenders may require monthly interest payments.

Interest Rate:
This is the cost of borrowing money, expressed as a percentage of the loan amount. It's like the entrance fee to a fancy amusement park—the higher the rate, the more you pay to ride.

Early Repayment Charges:
Some lenders will charge you a penalty if you repay your loan early. It's a bit like leaving the cinema before the film ends—you might miss out on something important (like your hard-earned money).

Understanding these terms and conditions can make your journey through the property market smoother and more enjoyable. It's like having a map while hiking—you're less likely to get lost, and you can focus on the beautiful scenery.

So, wear your financial thinking cap, and let's dance through these terms together!

Pros and cons of bridging loans

  • Speedy by nature: Bridging loans are like Usain Bolt in the finance world—fast and focused. They can be arranged quicker than traditional loans, which is ideal when you have to act quickly on a property purchase.
  • Temporarily solves your cash flow problems: Bridging loans are a bit like a financial plaster, covering the wound whilst your main funds are being sorted out. They bridge the gap and keep cash flowing when you need it most.
  • Flexible repayment: Especially with open bridging loans, you have flexibility in repayment, which can be quite the relief.
  • High interest rates: Like a roller coaster ride, bridging loans can give thrills, but they can also give chills. Due to their short-term nature, they tend to have higher interest rates than other types of loans.
  • Charges and fees: Like an annoying fly that won't buzz off, charges and fees can add up with bridging loans. There may be an exit fee, an arrangement fee, a valuation fee, legal fees... the list goes on.
  • Risk of repossession: Slightly more serious this one. If you fail to repay the bridging loan, your property could be at risk of repossession. It's a bit like playing financial Jenga—remove the wrong block (or fail to repay the loan) and the whole tower could come crashing down.

Key Takeaways

Jolly well done, you've almost reached the summit of your financial Everest! But before you plant your flag, let's take a moment to reflect on what we've learned:

  • Application Process: Applying for a bridging loan via Hello Mortgage is like baking a Victoria sponge—there's a simple step-by-step process, and we're here to guide you through it.
  • Required Documents: Don't forget to pack your financial expedition kit. Just like a well-planned camping trip, the right documentation will ensure you navigate the application process with ease.
  • Loan Terms and Repayment: Understanding your loan terms is akin to learning a new dance. Once you know the steps, you'll move through your repayment schedule in perfect rhythm.

Remember, in the world of finance, as in life, knowledge and preparation are your best allies. So, keep your wits about you, chin up, and stride confidently into your financial future. Now, who's for a celebratory cuppa?

Moving forward with bridging loans

Moving forward, bridging loans can be a powerful tool in your financial arsenal, much like a trusty Swiss Army knife when you're heading off into the financial wilderness. These versatile loans can provide a temporary financial parachute, be it for a property purchase, business investment, or even a renovation project.

Do remember though, like any financial venture, it’s crucial to understand what you're signing up for and to assess the risks. It's similar to checking the weather forecast before a hike—you want to be prepared for any unexpected downpours! As always, we at Hello Mortgage are here to help you navigate the terrain and make the most of your financial journey. Now, shall we crack on?

Glossary of Terms

Just like in any grand narrative or a good old game of cricket, there are a few terms you need to get familiar with. So, let's put on our financial spectacles and delve into the glossary, shall we?

  • Bridging Loan: This is a short-term financial solution, a bit like a quick cuppa to tide you over until lunchtime. It ‘bridges’ the gap when you need funds to make a purchase before receiving funds from another source.
  • Lender: The financial entity that provides the loan, much like the tea lady who keeps the office running smoothly with her timely brews.
  • Borrower: That's you! The person or entity receiving the loan, similar to an eager cricketer waiting for the perfect ball to hit.
  • Interest Rate: This is the cost of the loan, calculated as a percentage of the amount borrowed. Consider it as the entrance price for the ride.
  • Loan Term: The agreed timeframe in which the loan must be paid back. It's like the ticking cricket match clock, keeping everyone on their toes.
  • Repayment Schedule: Your calendar for paying back the loan, much like a well-organised tea rota everyone respects.
  • Early Repayment Charges: Penalty fees incurred if you repay your loan earlier than agreed. It's like buying a round of drinks and then leaving the party early—you still have to pay.

This glossary should help you understand the terms you'll encounter on your bridging loan journey. Keep it handy, like your favourite umbrella in the unpredictable British weather.

Useful Resources for Further Reading

To help you delve even deeper into the world of bridging loans, we've compiled a list of useful resources. Consider these your financial travel guides, helping you navigate the terrain with confidence and finesse.

  • Financial Conduct Authority: The FCA's guide to mortgages and home finance is a handy resource for anyone looking to understand the basics of borrowing.
  • Money Advice Service: This independent service set up by the UK government offers free, impartial advice on everything from budgeting to borrowing.
  • Bank of England: For an in-depth look at interest rates and monetary policy, the Bank of England's site is a treasure trove of information.
  • The Finance & Leasing Association: The FLA provides a range of guides on finance leasing and loans, including a particularly useful section on bridging loans.

So, don't be shy, dive into these resources like a duck to water. Remember, understanding is the key to making the most of your financial journey. Now, off you go, and don't forget to come back with a wealth of knowledge!

Why use Hello Mortgage?

As you embark on your financial journey, think of Hello Mortgage as your experienced, ever-dependable Sherpa, guiding you through the steep terrains of the property market. Our seasoned team of financial experts is well-versed in the landscape of bridging loans, possessing a vast wealth of knowledge that rivals the contents of a well-stocked pantry.

Partnering with us means you'll benefit from our keen understanding of the industry, akin to a seasoned chess player anticipating the moves of the game. We'll guide you past financial pitfalls, much like an expert navigator steering a ship through stormy seas.

Moreover, our bespoke advice is tailored precisely to your circumstances, just like a well-fitted suit. We appreciate that each client is unique, with different financial needs and objectives, and we're committed to staying by your side, much like a loyal Labrador, until you reach your financial goals.

So why choose Hello Mortgage? Because with us, you're not just getting a service, you're joining a community. We’re not just financial advisors, we’re your teammates, your cheerleaders, and your guides in this exhilarating journey of financial discovery. Now, isn't it about time we set off on this adventure together?

  • Personalised Service:
    At Hello Mortgage, we believe in the power of a tailored approach. Like a bespoke Savile Row suit, our services are meticulously crafted to meet your specific financial goals and circumstances. Your aspirations and needs are as unique as you are, and that's precisely how we treat them.
  • Experienced Team:
    Our team is a veritable powerhouse of financial expertise with decades of combined experience in the industry. Just as you'd trust your trusty Yorkshire Terrier to alert you of strangers, you can count on us to guide you wisely in the world of bridging loans.
  • Comprehensive Support:
    With Hello Mortgage, you never walk alone on your financial journey. We stand by you like a faithful butler, ready to assist you at every step of your journey - from initial consultation through to the completion of your bridging loan.
  • Transparent Practices:
    Our commitment to transparency is unwavering. We believe in keeping our clients informed and involved in every step of the process, just like a well-coordinated cricket team. With us, there are no hidden fees or unpleasant surprises, only a clear path towards achieving your financial goals.
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FAQs

Bridging Loan

What exactly is a bridging loan?

A bridging loan, much like a well-placed stepping stone, is a short-term loan designed to 'bridge' a temporary gap in finances.

Whether you are waiting for the sale of a property or the receipt of funds from another source, this type of loan provides you with the necessary funds in the interim.

What can I use a bridging loan for?

Bridging loans are versatile instruments, much like a Swiss army knife. They can be used for a range of purposes, from buying a new home before selling your existing one, to covering business expenses or facilitating a property development project.

How quickly can I get a bridging loan?

Unlike the lengthy process of brewing the perfect cup of tea, a bridging loan can be arranged quite quickly. Depending upon the lender and your individual circumstances, funds can typically be available within a few days to two weeks.

What are the risks associated with bridging loans?

As with any financial instrument, bridging loans come with their share of risks. The most common risk is the high interest rates, akin to a steep hill on a hiking trail. Also, if you're unable to meet the repayment schedule, you may incur additional fees, much like paying for a costly penalty in a cricket match.

Remember, it's important to thoroughly understand the terms and conditions before taking out a bridging loan, just like reading the rulebook before stepping onto the cricket pitch.

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