| You have fallen in love with your ideal home, and | | | | as long as you have paid the interest during the |
| your offer has been accepted. There is just one | | | | period and the property market hasn't collapsed. |
| snag - you can't get shot of your old house | | | | Interest rates |
| quickly enough and the deal is at risk of falling | | | | All bridging deals involve high interest rates. Usually |
| through. A bridging loan may be the only way to | | | | it is the Bank of England bank rate plus 2% to |
| keep the deal on track. | | | | 2.5%. There is also an arrangement fee ranging |
| These loans are expensive and are usually | | | | from 0.5% to 1.5% of the value of the loan. |
| considered to be a last resort. But if a bridging | | | | Some lenders charge higher rates of interest and |
| loan can tide you over in the short term then the | | | | lower arrangement fees. There are also specialist |
| extra expense may save you from losing money | | | | lenders that are faster at issuing the cash, but |
| already spent in the purchase process, as well as | | | | borrowers can expect to pay a high price for the |
| reducing stress. | | | | privilege. |
| Activity in the bridging-loan market is small scale, | | | | Deciding whether to go for a lower rate of |
| especially during a property boom when there is | | | | interest or a lower arrangement fee depends on |
| rarely a problem with selling a home quickly. But | | | | your circumstances. If you are confident that the |
| when the market slackens off, more home | | | | sale will go through within a few weeks, then it is |
| owners are forced to consider these loans. | | | | better to pick a loan with a lower arrangement |
| Loan types | | | | fee. If you think you may end up bridging for |
| There are two main types of bridging loan: the | | | | many months, then the fee becomes a smaller |
| 'closed' bridge and the 'open' bridge. A closed | | | | part of the overall cost. |
| bridge is only available to homebuyers who have | | | | The alternative |
| already exchanged on the sale of their existing | | | | If you are uncomfortable with bridging loans, you |
| property. Very few sales fall through after | | | | may consider letting your old home instead. |
| exchange, so lenders are happy to offer | | | | It works like this: you remortgage your existing |
| closed-bridge financing. | | | | property to release enough equity to pay a |
| An 'open' bridge is taken out by buyers who have | | | | deposit on a mortgage for the new home. The |
| found their ideal property, but may not have put | | | | mortgage on the old home is then converted to a |
| their existing home on the market. A bank will ask | | | | buy-to-let deal (as long as your lender lets you), |
| lots of questions and want supporting information. | | | | with the rental income used to cover the |
| It will also insist on you having lots of equity in | | | | mortgage repayments. |
| your existing property. | | | | The mortgage on your new home is based on |
| The basics | | | | your income as normal. It is a good way to test |
| The lender will expect to see the mortgage offer | | | | the water as a landlord. If you don't like it you can |
| on the new property, the property details and | | | | sell the property when the tenancy agreement |
| may ask for other proof that your current home | | | | runs out. Make sure you research the local renting |
| is being actively marketed. It will also want to | | | | market before taking the plunge. |
| know how you will meet the interest payments | | | | Christian is an author of several articles pertaining |
| and ask what your exit strategy will be if the sale | | | | to Personal Loans. He is known for his expertise |
| were to fall through a few months down the line. | | | | on the subject and on other Business and Finance |
| Most lenders put a 12-month limit on an open | | | | related articles. |
| bridge. After that, they will probably renegotiate | | | | |