Open and closed bridging loans
More and more bridging loans are being taken out in order to bridge short term cash shortfalls that can occur when people are buying property. These types of bridging loans are being taken out in order to provide funds to complete the purchase of a property. The bridging funds are required because the sale of the old property has not been completed but the funds tied up in the old property are required in order to complete the purchase.
Many house purchases have failed due to the problems associated with obtaining mortgages since the credit crunch. The credit crunch has made obtaining mortgages a lot more difficult, and despite them beginning to get a little easier to obtain, many people who require mortgages are still finding it difficult or impossible to obtain one.
Bridging loans are being used by many people to save their proposed purchase after the sale of their own property has fallen through. Their alternative would be to wait until they find a new buyer or until their current buyer solves any problems that they have been having raising the funds for their purchase. Once the problems have been solved, or a new buyer has been found, so that the sale of the existing property can proceed, then the purchase of the new property can also proceed. If in the meantime the property has been lost due to it selling to someone else, then another property will need to be found, and there is plenty of property out there for sale.
Alternatively if the buyer did not want to wait, therefore avoiding the risk of losing the property, they could possibly take out a bridging loan. The bridging loan will provide temporary funds to facilitate the purchase of the new property and will be repaid once the old property has been sold. When it is not known when the bridging loan will be repaid because it is not known when a buyer will be found and when the purchase will complete, this is known as a closed bridging loan. This is obviously risky for the customer taking out the bridging loan due to the set up costs involved and the monthly interest charges. In addition it is also risky for the bridging lender as they do not know when their loan is likely to be repaid.
Quite often it is known how long the bridging loan is required, and is only being taken out to bridge a gap in the completion date of the property being purchased and the completion date of the property being sold. These bridging loans are less risky for everyone because the date when it is going to be repaid is known. Therefore the customer will know from the start exactly how long they are going to have the bridging loan and how much having one is going to cost.