Bridging Loan
A bridging loan is a short-term financing option used in the property market to "bridge" the gap between purchasing a new property and selling an existing one. It provides immediate cash flow, allowing buyers to proceed with purchases before having access to longer-term financing solutions or the proceeds from a sale.
What is a Bridging Loan?
In the property market, bridging loans are a crucial financial tool for buyers who need to manage timing discrepancies between buying a new property and selling an existing one. These loans are typically short-term, usually up to 12 months, offering a rapid influx of funds with the expectation that the loan will be repaid quickly, often through the sale of property or refinancing into a more permanent mortgage solution.
Bridging loans can be invaluable in facilitating property transactions that might otherwise be impossible due to timing constraints. For example, if a buyer has found their ideal home but has not yet sold their current property, a bridging loan allows them to purchase the new property without having to wait for the sale to complete. This can be particularly useful in competitive property markets where waiting to sell first might mean missing out on purchasing the desired property.
The interest rates on bridging loans are generally higher than for traditional mortgages, reflecting the higher risk and short-term nature of the loan. Borrowers can choose between closed bridging loans, which have a fixed repayment date, and open bridging loans, which are more flexible but typically come with higher interest rates.
Frequently Asked Questions
Bridging Loan is a term that you may have heard before, but you might not be sure what it means. Here are some common questions and answers to help you understand what it means.
