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Added by Love Business East Midlands | 18 April 2014
UPDATED: 4 June 2014
Bridging loans were originally designed to help house buyers stuck in a situation where the cash flow shortage is only temporary.
If you are selling up, knowing when to start seriously looking for a new home is incredibly difficult. If you start looking too soon, you could end up falling in love with a property but can’t move because your house isn’t sold or your buyer isn’t ready.
Start too late and you might not find the right kind of property you want in time and you risk losing your buyer. Which is why bridging loans are a godsend for many people, allowing them to move house without getting stuck in a cycle where buyer and seller cannot time their purchases simultaneously.
Bridging loans work very differently to normal finance and it’s essential that you understand the basics before signing on the dotted line. Here are a few fundamental facts you should be aware of:
Although bridging loans are a different beast entirely to a secured loan, to qualify you must have an asset which you are willing to put up as security. Domestic property, shops, land, commercial property or offices are typically acceptable as collateral.
It’s important to understand that bridging loans are not intended for long term borrowing. The maximum length of time usually offered is around 18 months because the level of repayments cannot usually be sustained for longer periods.
This is because the interest rate which applies to a bridging loan is much higher compared to a standard home loan but as they are offered without an inquisition. They are designed to cover an interim shortfall only, this makes the cost is acceptable for most people.