Burrows bridging loan solicitors offer legal services for individuals seeking short-term finance to facilitate property transactions. Our team of conveyancers work with efficiency and urgency, recognising the time-critical nature of such transactions. We provide legal advice on bridging finance and assist with your application to increase your likelihood of success.
What is a bridging loan?
A bridging loan is a type of short-term loan that can be used to finance a property purchase and expedite the conveyancing process. Depending on your situation, a bridging loan may serve as a viable alternative to a traditional mortgage.
A bridging loan can enable you to:
- Purchase a new property before selling your current property
- Finance a swift purchase at auction
- Fund a property development or renovation project
How does a bridging loan work?
Bridging loans typically have a term of one month to a year, with repayment due at the end of the term.
There are two types of bridging loans: closed bridging loans and open bridging loans.
A closed bridging loan requires you to have an established “exit strategy” for repaying the loan from the outset, such as the completion date of a property sale. These loans are typically repaid within a few months.
An open bridging loan allows you a year to repay the loan and does not require a predetermined exit strategy.
Unlike conventional mortgage lenders, most bridging loan lenders do not impose a penalty fee for early repayment. Therefore, if you take out a 10-month bridging loan but can repay it after 3 months, you can save yourself interest payments.
While bridging loans generally have higher interest rates than conventional mortgages, they are increasingly competitive. Failure to repay a bridging loan at the end of the term can result in substantial costs and potential repossession of your property.
What are the requirements for a bridging loan?
Bridging loan lenders consider several factors when evaluating your eligibility for a loan, such as whether you are an existing property owner. The lender is likely to secure the loan against your property, and if you have an existing mortgage, they will place a “second charge” against your property. This means that your mortgage provider takes priority over the bridging loan lender if you fail to make repayments on your property, as they have a “first charge” against it.
Additionally, you will need to provide proof of your income, an exit strategy for repaying the loan, and a business plan if the property purchase is a commercial venture. If you plan to use the bridging loan to develop a property, you will need to have a proven track record of success.