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Financial Services > Mortgages > Bridging Loans > Bridging Loans Explained
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Bridging loans

Bridging loans mortgage guide

What is a bridging loan?

It's a type of loan which homeowners can take out to solve temporary cash problems.

For example, if you want to move but you need to complete on your purchase before your sale has gone through, you can take a loan to cover you to bridge the gap. 

A bridging loan is a loan usually taken out as an immediate source of a large sum of money, often to cover the costs of purchasing a property.

Bridging loans are usually repaid within half a year of being taken out, though it is often less.

Is a bridging loan like a very short mortgage?

Not quite. Because of the extra risks, bridging loans will be more expensive - usually around 1% a month at least.

Only ever take out a bridging loan if you know you won't need the money for long - otherwise the expense will be ridiculously high. 

There are specialist bridging loan providers - and just as with ordinary mortgages, they will need to be convinced you're not overstretching yourself.

Are they a good idea?

Bridging loans are the last resort: Don't take one out unless you really can't avoid it. If you are in a property chain which you don't want to break then they can work - but do get legal advice first.

For example, they could work if there are a few days' delay between completion on your purchase and on your sale. However, they must not be used to prop up a chain which has no certainty of being completed.

If you default on a bridging loan, you may be in trouble on both your properties as the bridging loan lender may take both as security.

What sort of bridging loans are there?

You can get a 'closed' or 'open' bridge. A closed bridge is for homebuyers who have already exchanged on the sale of their existing property.

Only a tiny number of sales fall through after exchange, so lenders are happy to offer closed-bridge financing.

An 'open' bridge is for buyers who have found a home to buy but haven't sold their home and are thus more risky. Lenders will usually put a 12 month limit on bridging loans of this type.

What's the alternative?

If you can't sell but are determined to move, why not let your current home instead? Rental payments should be sufficient to cover the mortgage.

Remember you have to tell your lender if you're letting a property - and also that you'll need to insure the home and get decent tenants.

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