Bridging Loans

What is a bridging loan?

A bridging loan is a type of secured, short-term loan. They’re typically taken out when purchasing a new property before a current home is sold. It is most suitable for landlords and developers.

What types of bridging loans exist?

How much does a bridging loan cost?

Bridging loans cost roughly 1-2% of the total size of your loan, though there are a range of fees to consider. These include:

• Your monthly interest commitment
• Survey fees (sometimes referred to as valuation fees)
• Legal fees
• Broker fees
• Admin fees

Because the cost of a loan is individual to your particular loan, it’s difficult to give a flat cost. The best way to estimate the cost of a bridging loan is with a bridging loan calculator.

Is a bridging loan a good idea?

A bridging loan can help move a house sale along, so you don’t need to delay plans for renovation or just moving in. However, it’s important to note that it is a short-term loan and therefore is offered at a higher rate of interest. You’ll need to account for arrangement fees, legal fees and exit fees in some cases, so it’s a good idea to be sure you can confirm the sale beforehand.

Advantages and disadvantages of bridging loans

Explore the advantages and disadvantages of bridging loans before deciding if they’re the right choice for you.

The benefits of bridging loans

Bridging loans bring a lot of benefits with them – they wouldn’t be appealing if they didn’t. Here are some of the main reasons you may want to arrange a bridging loan:

• Speed. Bridging loans are quick – you can arrange them in anywhere from three days to three weeks depending on the type of loan. This means you can get an immediate cash injection as required.
• Flexible. Bridging loans are available for both commercial and personal projects. They can also be secured against commercial assets and residential properties.
• No Early Repayment Charges. While there may be minimum loan terms, there are usually no early repayment charges.

Bridging loans are also useful for purchasing properties you may not be able to mortgage such as below market value properties bought at auction. Due to the speed in which they can be arranged, they can be ideal for paying for auction purchases, as their completion times are around 28 days.

Cons of bridging loans

While bridging loans bring a lot of benefits, they’re not right for everybody:

• Secured Loans. As bridging loans are secured loans, it means they are taken out against an asset – usually property. While this isn’t necessarily a negative thing, you could lose your home if you fail to make repayments.
• Higher Borrowing Costs. Bridging loans are convenient and quick but this comes with a premium in the form of typically higher borrowing costs.

Bridging loan vs mortgage

Although both are different types of loan, there is one big difference between mortgages and bridging loans. A bridging loan is often used when you are waiting on the sale of a property to go through, to cover costs and ensure no delays. It can help you break the chain of moving house, ensuring the sale doesn’t fall through, giving you the funds needed to move things along. A bridging loan is a short-term solution and the debt is paid through the eventual proceeds of your sale. Meanwhile, a mortgage is a longer-term debt, usually repayable over 20 to 30 years.

Find out more about bridging loans with Norton Finance

Frequently asked questions about bridging loans

We’ve answered some of the most common questions about bridging loans, helping you decide if it’s the right choice for you.

What is a residential bridging loan?

Residential bridging loans are short-term loans that can be used to fund rental or investment properties. These are often secured against your own home or other suitable assets.

Do banks still give bridging loans?

Most high-street banks do not give bridging loans directly. You may need to work with a broker, such as Norton Finance, to secure a bridging loan as most lenders are not public facing. Some banks may have separate subsidiaries that handle bridging loans.

Is a bridging loan cheaper than a mortgage?

In general, a bridging loan has a higher interest rate than a standard mortgage as they are deemed higher risk. There is also a premium placed on the short-term nature and turn around speed of funds. Interest can either be claimed on a monthly basis or rolled up until a final payment. You can use a bridging loan calculator to get an estimate of the cost of your loan.

Am I eligible for a bridging loan?

Some types of bridging loans are offered only when you have a firm idea of when you can repay the money – so for example, if you are expecting a property sale within the next month, you can apply with the lender’s understanding that the debt will be repaid within 30 days.

You should think carefully before applying for this kind of loan if you do not have an ‘exit plan’ – as the interest tends to be much higher on a bridging loan, and are calculated differently to a typical APR.

What do I need to apply for a bridging loan?

You can get started with your application online. We will ask for a few details to begin your application, including the loan amount you require, personal details and address.

Once these have been received, we will be in touch to find out more information about your situation. Have the details below to hand to ensure we can move your application along without any delay.

• Your name and address
• Details of the property including value
• Details on your income

Loan details

• How much can I borrow?
  If you choose Norton Finance to broker your loan, you can borrow between £3,000 and £500,000.
• What are the interest rates?
  The interest rate you pay will depend upon your financial history and current situation.
• Are there any loan fees?
  There are fees to consider, including arrangement, administration, legal and valuation fees. However, we are a broker not a bank, so receive a commission from the lenders we work with.

Applying for a bridging loan

Applying for any type of loan shouldn’t be taken lightly. We’re here to help you every step of the way. Once you apply, we’ll search hundreds of plans to find a loan that works for your situation. We work with a wide network of responsible lenders to provide the funds you need to secure your new property.

Find bridging loans to suit you with Norton Finance