Bridging loans are a short-term and secured way of getting finance. It’s high-speed and designed to ‘bridge the gap’ between the money that’s going out and the money that’s coming in.

These bridging loans last from around 3 months to 18 months, and these loans are ideal for situations where the timing might be critical. You’ll also be provided capital in as little as 24 hours to a few weeks. Bridging loans are typically used in property transactions or renovations with the home. Borrowers of bridging loans are able to secure the new home or investment before selling their old property.

How bridging loans fill the gap

Bridging loans should be viewed as a temporary solution to cash-flow mismatches. It’s usually secured against existing property or with other assets.

If you find a new home but you’ve not sold the current one, then a chain break can usually occur. This risks the sale of your property and the property you’re buying. A bridging loan provides cash to complete the purchase and avoid the risk of losing the property.

You’ve got the opportunity of exploring property auctions. Auction purchases require a 10% deposit immediately, and the balance is often due within 28 days. A bridging loan is something you can arrange in time to meet the strict deadlines set by auction houses.

Fixing broken chains is important to be aware of when it comes to bridging loans because chain breaks can often happen when buying or selling property. A bridging loan can act as a stopgap, allowing you to proceed with the purchase, instead of having to wait for a new buyer to be found.

Properties that need significant work often cannot secure a traditional mortgage. A bridging loan is helpful to fund the purchase and renovation, with the intent to help refinance once it’s possible to do so.

Key features and types of bridging loans

What are some of the key features and types of bridging loans? Here’s what you should know about bridging loans to help fill the gap.

Speed

Bridging loans are designed for speed and can often be arranged within days. 

Structure 

Bridging loans are secured loans and are usually secured against any property you have, likely the one you’re trying to sell if buying another property.

Interest payments

Interest is typically added to the final lump sum or paid monthly. This can help to preserve current cash flow.

Open vs closed loans

With bridging loans, you’ve got two options to choose from. These are open and closed loans. A closed bridge is used when you have a set date for receiving funds, as well as a completed sale of the home.

An open bridge is used when you need the funds urgently but don’t have a fixed repayment date. It’s usually required to be repaid within twelve months.

Advantages and risks 

There are advantages but also risks to using a bridging loan. Some of the advantages of a bridging loan are that they provide rapid access to funds. There’s a high flexibility and ability to purchase at auction available. As well as that, you can turn yourself into a cash buyer too.

Higher interest rates are standard with bridging loans in comparison to traditional mortgages. Significant setup fees and the risk of losing the secure asset if the loan isn’t repaid.

A clear exit strategy is also important to have when it comes to repaying the loan within the term. From selling the property to obtaining a long-term mortgage. These are the important things to consider when it comes to bridging loans, helping to fill the gap.

This article may contain affiliate links, which means we may earn a commission if you purchase through these links. This comes at no additional cost to you and helps support the operations of The We Spot—thank you for your support! The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views of The We Spot, its owners, employees, sponsors, or affiliates. This content is for informational purposes only and does not constitute legal, financial, medical, or therapeutic advice. Readers should consult a qualified professional before making any decisions based on the information provided.