pro's & cons
when a bridging loan is a good idea, and when it is not.
Lets talk about Bridging Loans
A bridging loan is a type of short-term financing that is designed to bridge the gap between the purchase of a new property and the sale of an existing one. These loans are typically used by property developers, investors, and homebuyers.
How Bridging Loans Work
Bridging loans are typically secured against property and are therefore considered a form of secured lending. The loan is used to purchase a new property before an existing one has been sold or to purchase a property that is not suitable for a conventional mortgage (No Kitchen/Bathroom etc). The lender advances the funds, and the borrower is then required to repay the loan, plus interest, when the property is sold or when an alternative long-term funding solution is secured like a mortgage.
Loan to Value (LTV) Ratio
The loan to value (LTV) ratio is a key factor in determining the risk of a bridging loan. The LTV ratio is calculated by dividing the amount of the loan by the value of the property being used as security. In general, the lower the LTV ratio, the lower the risk to the lender and the more favourable the loan terms are likely to be.
Types of Bridging Loans
There are two main types of bridging loans: closed bridge loans and open bridge loans. Closed bridge loans are used when the borrower knows exactly when they will be able to repay the loan, such as when the existing property is due to be sold. Open bridge loans are used when the borrower is uncertain about when they will be able to repay the loan and may require an extension.
Advantages and Disadvantages of Bridging Loans
One of the main advantages of bridging loans is that they are designed to be flexible and can be arranged quickly. This is particularly useful for property developers and investors who need speed to secure a new property or complete a project. Another advantage is that bridging loans can be used for a variety of different purposes, such as property refurbishment, development and even auction purchase. They also require less documentation than a standard mortgage.
However, one of the main disadvantages of bridging loans is that they normally come with higher interest rates than standard mortgages. This is because they are considered a high risk form of lending. It is also important to be aware that if the sale of the existing property is delayed or if the borrower is unable to secure long-term financing (such as a mortgage_, they may be required to extend the loan, which can be costly. Additionally, the application process may be more difficult and have a more difficult criteria.
Bridging loans can be useful for property developers, investors, and homebuyers. However, they are considered high risk and typically come with higher interest rates than standard mortgages. Before taking out a bridging loan, it is important to fully understand the terms and conditions and to have a clear plan in place for repaying the loan. It is also important to seek advice as there are many different lenders and most do not offer the same type of protections as your residential mortgage.
Some forms of Buy to Let mortgages and Bridging Loans are not regulated by the Financial Conduct Authority.
The value of investments, and the income arising from them, can go down as well as up, and is not guaranteed, which means that you may not get back what you invested. Past performance is not a reliable indicator of future results.
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Customer Success Stories
In Their Own Words
Greg and his team provided us with a first class service. It was good to have a professional service provided by a local business with a personal touch.
I'm so grateful for all your help the last few months, absolutely outstanding service, Greg always had time to answer any questions I had. I would highly recommend to anyone!
I cannot thank bryony and Leanne enough for all there help dealing with my loan process .
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Will definitely be using right loan wales again
Bryony was so amazing, she kept us informed every step of the way. She was always so positive and helpful. She worked efficiently and effectively and was always able to be contacted. If she was busy she would ensure contact at her earliest convenience which was always the same day. From the start she spent the time to get to know our situation as individuals and not just another application. We Would 100% recommend. Thanks Bryony and team.
Bryony and the team at Right Loan Wales were very efficient, responsive and a joy to deal with throughout my dealings with them. I will be recommending them to any friends who need to raise finances.
Bryony Davies of Right Loan Wales provided a most helpful and professional service throughout the application process. The whole team's advice and assistance made the experience very east to navigate form initial application to final offer. I would have no reservations in recommending this business to anyone seeking a loan of this nature.
Buying a house had always seemed unachievable for me, I had built it up to be something so out of reach in my mind I thought that it was something that would take years, if it happened at all! That all changed thanks to the amazing support of the guys at the Money Geeks - I approached them, expecting to be told that it wasn’t possible, and within a couple of weeks I had found my perfect house and had a mortgage offer! The whole process couldn’t have been easier for me (although I was as far away from an easy client as possible), and I can’t thank them enough for what they have done for me and my family! Thank you Greg and Ben! You are true experts - if anyone can make it happen for you, it’s these guys!
From my first meeting with The Money Geeks, I was impressed with the level of professionalism and attention to detail. Their impartial expertise was second to none, and nothing was too much trouble. I will definitely use their services again! Thank you so much for supporting me from the initial advice all the way to completion and my insurances! Highly recommended!
Greg and his team at The Money Geeks were fantastic from start to finish. Greg dealt with our application personally and made what we felt was impossible, possible. We had seen mortgage advisors prior to seeing Greg and we felt we weren’t getting the right advise and guidance. As soon as I approached him he made an appointment with us and offered to call to the house making the whole experience feel slightly less formal and more comforting. He was instantly able to tell us what we needed to do and got us a mortgage offer within days. He has put up with endless nagging and nothing has ever been too much to ask. He was always at the other end of the phone if I needed him and very efficient. And as first time buyers I felt he spoke to us is in real terms helping us understand everything fully. We would highly recommend using The Money Geeks - the best service we could have asked for and money well spent.
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