How does a bridging loan work?
A bridging loan works as a short-term, property backed loan, often with no monthly repayments to make.
They allow you to borrow an amount of money, over a set term, usually between 1-18 months, with the interest being rolled into the loan.
At the end of the term, the loan and interest are repaid through what is known as your exit strategy – usually either the sale of the property or a remortgage.
How can this type of finance help in a divorce situation?
There are several ways in which they can help. They are:
To fund legal expenses
A bridging product can be used to release equity from your home to fund legal expenses for either one or both partners.
It’s a fast way to borrow, with no monthly repayments, which makes them a popular and simple option for this situation.
The new loan can either replace your existing mortgage, or sit alongside it, known as a second charge bridging loan.
To finance a property while waiting to sell
Where one or both partners have moved out of the family home and has taken on a new property, it may not be realistic to pay both the new mortgage or rent, and the existing mortgage on the family home.
In this situation, where the family home will be sold, bridging can be used to repay the existing mortgage, leaving you with no monthly repayments to make.
This dramatically reduces the tension that can be caused when desperate for a quick house sale to avoid missed mortgage payments impacting your credit score.
Read more – Bridging loans for farmers or Bridging loans for a hotel.
To buy a partner out of a jointly owned property
If one partner is looking to buy out the other, bridging finance can be used to refinance the property quickly and transfer equity to the remaining partner.
This gives full control over the property and is often used either for time sensitive transactions or when the property is going to be refurbished and either sold or refinanced.
They can be used to release equity to purchase another property
When one or both parties need to release funds quickly to purchase another property, this form of short-term finance is an ideal option.
It allows you to release the funds without being committed to high monthly repayments.
How much will a bridging loan cost me?
A bridging loan usually costs between £6,280 and £12,400 per year per £100,000 per month.
The main cost of borrowing is interest, with bridging loan rates starting at 0.39% and rising up to 0.95% for most transactions – although some rates are higher than this.
On top of the interest cost, there is also a lender arrangement fee of 1-2%, although this may be lower for large bridging loans over £1,000,000.
Read more – Remortgage after a bridge loan or Can a bridging loan affect your mortgage application.
How can I apply for a bridge?
The best way to apply for a bridging loan is through a reputable bridging loan broker.
There are several advantages to using a broker, including:
- A broker can help you to find a better deal.
- They work on your side, not the side of the lender to ensure you’re well looked after.
- A good broker will ensure that your exit strategy is realistic and will help you repay the loan safely, not just take it on with no way out.
- Some lenders only work through brokers, meaning you can’t access the whole market and may not be able to secure the best bridging loan deal without a broker.
How quickly can I receive the funds?
Bridging applications can be completed in anything from 2 days to 3 weeks in most cases.
For urgent bridging loan applications, you may be able to complete extremely quickly, although the fastest lenders are rarely the cheapest ones.
For this reason, there is usually a healthy balance to be achieved between price and speed.
Where help is needed in managing stakeholders who are holding you to a deadline, we are happy to step in and take on the burden of managing them.
Frequently asked questions
Here are some of the key questions that we often receive.
Can you help borrowers with bad credit?
Yes, we offer a specialist range of bad credit bridging loans for those with an impaired credit history.
Do you have geographical restrictions on where you can fund?
We offer finance throughout the UK including England, Scotland, Wales and Northern Ireland.
Do you charge broker fees?
No, we don’t charge broker fees for loans over £100,000 and in many cases don’t charge for those below.
If your loan does require a broker fee (which is very rare), we always inform you before you commit to an application.
