How to get a bridging loan

A bridging loan can be a useful and flexible form of finance when buying a new property. But applying for a bridging loan is different to other forms of lending. In this guide we’ve explained what a bridging loan is, and some considerations you’ll need to make during the application process.

A bridging loan is a short-term loan which is designed to help you afford something immediately. Usually, it is used when you buy a new property before selling your existing one.

For example, suppose you’re selling one house at £200,000 and buying another at £250,000. However, the sale of the first home has slowed and you wish to buy the second home as soon as possible.

After putting down a deposit of £75,000, you decide to get a bridging loan of £175,000 to finalise the purchase of your new home. You will then pay a monthly interest rate until the sale of your £200,000 property goes through. At this point you can repay the lender for the original capital borrowed.

Of course, there are other creative uses for bridging loans like paying for home renovations. In this example, you can take out a small advance to get your renovations started. Once another, more affordable form of financing is approved (like a remortgage or personal loan), you can use this to pay off your bridging loan.  

Applying for a bridging loan is different to other forms of financing, such as a personal loan. You’ll need to consider your ability to make the interest repayments and an exit strategy. Below we’ve listed some considerations you’ll need to make in a step-by-step process.

Whatever the use for your bridging loan, the first step you’ll need to take is considering how much you need to borrow.

In the example above, this sum was £175,000 but it can differ according to your own unique circumstances. After determining this sum it is also worth considering other lending options available to you. For example, you could consider a second charge mortgage.

If you still believe a bridging loan is the best form of financing for you, then you’ll need to work on a repayment plan before you find a suitable lender. This includes considering your ability to make monthly interest repayments since bridging loans are short-term lending options.

Once you can afford this, then you’ll need to plan your exit strategy. This is an important part of getting a bridging loan, as it will demonstrate to your lender that you have a plan to repay the borrowed capital.

Timescales are important when it comes to your exit strategy, so one tip is to always take a bridging loan over a longer period than you deem necessary.

This is especially true if you’re planning on making the capital repayment by selling a property. It’s not unusual for property sales to take longer than expected, so give yourself enough time if your buyer falls through.

Once you’ve finalised your exit strategy you can start thinking of applying for a bridging loan.

Make sure to use the Moneyfactscompare.co.uk bridging loans chart to find the lowest rates on the market.

When you’ve found a suitable lender you may also need to organise a few additional documents when readying your application. It isn’t unusual for lenders to ask for proof of income, as evidence that you can afford the monthly interest repayments, and detailed information on your property during the application process.

Bridging loans are usually quick forms of financing, and you should see the money in your account between five and 21 days.

From here it is important to stick to your repayment plan. Not only can defaulted payments affect your credit rating, they could see your property repossessed. This is because bridging loans are secured loans, and you will need to put up some form of collateral before your lender approves your bridging loan.    

As mentioned previously, there could be other forms of financing more suited for you.

To evaluate these options speak to our preferred brokers, Loans Warehouse. With access to a range of products and a number of highly-skilled brokers, Loans Warehouse can help you choose your next most affordable loan.