For those times when you need to ‘bridge’ the gap between buying your new property and selling your old.
It is not uncommon that you may find yourself buying and selling at the same time. But what if that perfect property comes up that you just ’have’ to own yet you still have not sold or settled on your existing property?
Enter the Bridging Loan. This type of loan allows you to obtain finance to ‘bridge’ the gap between having to pay for your new property and receiving the proceeds from the sale of your existing one. The lender will typically take security over both properties, which is usually capped at a maximum of 80% of the value of both.
The terms, conditions and options of a bridging loan will differ from lender to lender, and some criteria can be restrictive:
Are there risks?
Although a Bridging Loan may look to be the answer to your prayers, there ARE risks that you need to be aware of.
Firstly, it is important to make sure you can actually afford to look after the two loans comfortably if necessary. It is not uncommon to overestimate the sale price of your existing property, which may leave you short of funds to pay out the Bridging Loan. This is an easy trap to fall into, as you will have an emotional attachment to your existing home, and your idea of what it is worth may not be realistic in the current market. You may just find yourself needing to service BOTH loans for a time.
Perhaps the greatest risk if what will happen if your property DOES NOT sell within the agreed bridging period. This could result in an increase in interest rate, as well as switching from the common interest only rate to both principal and interest, thus increasing the scheduled repayment amount.
However, bridging finance can ease the pressure of buying and selling at the same time and may be just the thing you need. Let Simply Money help you make the right choice.