Moving home can be a nightmare at the best of times, not only do you have to worry about finding someone to move all your stuff, deal with lawyers and estate agents fees, you also need to think about transferring utility bills and all the other practicalities that are so important. So what happens then when you find the house of your dreams, have an offer accepted only to find that you are having difficulty selling your current property?
Bridging loans are often seen as a practical alternative to taking on another mortgage and they do have advantages. They offer a quick and simple solution, a cash injection that will prevent you from losing out on what you really want.
There are two different types of bridging loan: closed and open. Closed loans are available only to those who have already had an exchange of sale on their current property; these tend to be easier to obtain because banks see little risk of the deal falling through once the sale has already been agreed. An open loan can be obtained by people who have not yet put their existing property on the market or achieved a sale. These are more difficult to come by and banks will request a lot of information before they agree to lending. These are usually arranged on a 12 month basis and will be renegotiated should the money not be paid back during this time.
One of the biggest areas of concern for those taking out a bridging loan are the high interest rates – usually the Bank of England rate plus up to an additional 2.5% plus arrangement fees. Obviously, if something goes wrong with the sale of your existing property, this can end up being quite a costly affair.
When considering a bridging loan you should be very, very careful and consider just how certain you are that you will sell your house. If you are in the final stages of an agreement, and there are just a few loose ends to be tied then a bridging loan could be a great option, however, if you are planning on using it because you can’t get a mortgage – forget about it. Always bear in mind that the banks will use your existing property as security and weigh up your options before going ahead and borrowing.