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Financial Services > Mortgages > Bridging Loans > Bridging Loan Types
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Bridging Loan Types

There are a number of types of bridging loans, each with different criteria for eligibility which can often affect their respective costs.

Bridging Loans for Auction Purchase

It is becoming increasingly popular to purchase property or land at auction for numerous reasons. It is not always possible due to the nature of the purchase to take out a mortgage in order to buy a property; therefore a Bridging loan may be taken out as a short term source of the funds needed. A Bridging loan is an ideal solution as they can be arranged within a matter of days and a decision on the success of a Bridging loan request could be reached within hours of the initial inquiry.

It is often the case with auction property that a buyer will have 28 days to complete the purchase, thus adequate time to arrange a bridging loan. Additionally if immediate funds for a deposit are required this can often be arranged providing the loan can be secured against other property already owned. In the same way a bridging loan will may be used to cover renovation which again can be done so on condition that the loan is secured.

Bridging Loans for Commercial Property

As the name suggests, a commercial property Bridging loans can be taken out when funds need to be freed up. This is normally the case when a commercial property is to be converted into residential property; the commercial bridging loan is secured against the property and could be used to fund the conversion.

Alternatively, a commercial Bridging loan may be used for business cash flow injection, to make building improvements, to release equity for debt consolidation or to purchase new properties.     

Bridging Loans for Land Purchase

A Land Purchase Bridging loan is normally used by developers, private builders and self build projects; Bridging loans are often taken out when it is necessary to move quickly once a suitable site has been found with the relevant planning permission.

It is often the case that banks do not ordinarily lend to clients with the intention of land purchase unless it is producing rent, therefore a Bridging loan could be the best option until the property has been developed when a mortgage can be taken out to pay off the Bridging loan. Additionally a Bridging loan can be arranged in a variety of ways to reflect the development plan, for example funds can be supplied when applying for planning permission, then more to cover the costs of development.

Bridging Loans for Residential Property

A residential Bridging loan is most commonly taken out to provide funds to purchase a new property before the sale of an existing property has been completed. It is a short term loan that is normally paid off when the old property is sold.

Additionally a residential bridging loan could be taken out to buy new investment properties, to repay debt or to cover the costs of home improvements. Unlike alternative high street loans, a bridging loan can be based on the market values of the property for example before and after renovations rather than the purchase price, there for working in the owners favour and potentially attaining greater funds. In addition to this, a Bridging loan is also a favourable option when other lenders will not supply funds when a property is uninhabitable.

Closed Bridging Loans

A closed bridging loan is taken out when someone is buying a new property before the sale of their existing property. Importantly a closed bridging loan is set up when contracts have been exchanged for the sale of the old house.

This is a lot more assured for the lender than an open bridging loan as there is a significantly lower chance of the sale falling through and the lender not seeing their money returned.

Open Bridging Loans

An open bridging loan is usually taken out in circumstances similar to those in residential bridging loans. Open bridging loans provide funds to buy a new property before an existing one is sold, the ‘open’ means that there have been no contracts exchanged for the old property and is therefore more of a gamble for lenders.

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