Bridging loans helping to move home
The property market is still considerably slower than it was before the credit crunch. Consequently buying and selling property can be quite tricky, which is mainly caused by the increased difficulty in obtaining mortgages.
For people who are selling their home to move to another one this can be particularly difficult. Even if obtaining a mortgage isn’t necessary or isn’t a problem, the people selling the property that you intend to buy may discover that they are finding it unexpectedly difficult to arrange their required mortgage. When this is the case completing on the purchase can become difficult as the sellers delay whilst they struggle to sort out their finances. However, this problem can always be solved by the sellers moving out into rented accommodation, a caravan or moving in with family until they can arrange finance.
Another problem which makes moving difficult is selling the property that you currently live in. Having found someone who wants to buy your home they will probably need to obtain a mortgage. This is where your purchasers may start to have problems and this could cause delays in the sale chain.
When delays are unacceptable because you may lose out on the purchase of your new home, or you have some other deadlines for moving, then a bridging loan may be an option. Bridging loans are short term finance facilities that are commonly used to bridge gaps in peoples’ finances. They are commonly used because bridging loans can be put in place quickly and are usually the cheapest way to borrow money over a short period of time.
When bridging the gap in property sale chains a bridging lender will want to know if contracts for the sale of your property have been exchanged, and if they haven’t what is the current position regarding the sale of the property.
For applications where contracts have been exchanged, or will be exchanged before drawdown of the money, this is known as a closed bridging loan. Bridging lenders particularly like providing these facilities because they know when they are going to be repaid and there is little risk to them. On the other hand when contracts haven’t been exchanged this is known as an open bridging loan, because the lenders do not know when they are likely to be repaid, consequently these loans carry more risk for the lender.
Although open bridging loans are useful in that they can facilitate the purchase of a new home, care should be taken because you should be confident that the sale of your former home will complete in the near future. The longer that you have the bridging loan in place the more it costs so it is wise to ensure that you are able to sell your property reasonably quickly.