Short term bridging loans enable you to get access to much-needed funds quickly so you can complete on the purchase of a new property, especially if you are still waiting to sell your old property. Bridging loans are short-term in nature anyway, rarely lasting beyond a year. Therefore, when we’re talking about short term bridge loans, we’re talking about those specialist products that are taken out between a period of 1 day and 1 month.
They are highly fast and flexible, and can help you to stop wasting time and money waiting in a property chain – so long as the sale of your former property (your loan exit strategy) is eventually completed within the bridging loan’s timeframe.
Bridging loans can also be an option if you need to purchase and move into a new place quickly – perhaps you need to relocate for a job, or want to settle your family into their new home.
What is a Short Term Bridging Loan?
Bridging loans are called that because they bridge the gaps in your finances between the purchase of a new property and the sale of a former property. Bridging finance can also be used by property developers looking to make profit on the sale of a house or land (e.g. bought at auction and renovated) but do not have the funds the make the purchase outright. So long as there is the potential sale of a property on the horizon (an exit strategy for the loan), a lender can agree to offering a bridging loan.
Because of the speedy nature of bridging loans, they are always short term – usually lasting between one day and a year. If the loan exit strategy is not completed within the agreed upon time frame (e.g. the sale of a property), the borrower may face heavy interest, fines, or the use of their existing security as collateral.
Types of Short Term Bridging Loan
The type, length and rates of your bridging loan will depend on your current financial circumstances.
If you have a clear exit strategy (somebody has agreed to purchase your property and entered into a contract with you although has not yet paid), you will be able to quickly secure the funds you need in a loan that lasts the pre-determined duration of time you need, and at good rates. This type of bridging loan is called a Closed Bridge Loan.
If you wish to borrow funds to purchase a property which you either plan to sell on, or you have a previous property to sell, but do not have a buyer or any sales contracts signed, the lender faces a higher level of risk. In this situation you may have to use your existing property as collateral, and the loan duration may last longer as the exit strategy is not clearly defined. This type of bridging loan is called an Open Bridge Loan and carries more risk and higher rates.
If you can financially support taking out a bridging loan and have a clear exit strategy, they can save you time and money being locked in property chains.