How Bridging Finance Can Help You Transition Between Two Homes.

If you're thinking about buying a new home but still need to sell your old one, bridging finance can be your financial lifeline.

As a financial tool, bridging finance serves as a temporary loan that bridges the gap between buying a new property and selling an existing one.

In this week’s update we’ll break down the complexities of bridging finance to help you decide if it's the right option for you.

What is Bridging Finance Exactly?

Bridging finance, often called a bridging loan, is a short-term loan that helps you buy a new house before you sell your old one without the need to move twice.

For instance, if you've found your dream home but haven't sold your current property yet, a bridging loan can give you the funds to buy the new home.

Once your old home is sold, you can use the proceeds to repay the bridging loan.

These loans typically last from a few months up to a year and come with higher interest rates compared to traditional mortgages due to their short-term nature.

By understanding how bridging finance works, you can make informed decisions and manage the transition between two properties smoothly.

Are You Eligible?

Before applying for a bridging loan, it's best to talk to a Mortgage Adviser who can assess your eligibility.

Lenders typically have specific criteria that applicants must meet, such as significant equity in your current property,  financial stability and creditworthiness.

This is to ensure you have a reliable income to meet all the loan repayments during the bridging period.

Lastly, having proof that you can sell your home within a given period (e.g. 6-12 months) and a backup plan in case things change, can significantly bolster your application.”

Short-term vs Long-term Bridging

When considering a bridging loan, it's important to understand the difference between short-term and long-term bridging (also known as closed bridging and open bridging).

Short-term bridging loans typically last from a few months to a year. They are ideal for situations where you expect a quick resolution, like having already sold your home and bought another, but the settlement dates don't line up. The loan is a bridge between your two settlement dates.

On the other hand, long-term bridging or open bridge loans can extend a bit longer. These loans are harder to obtain as it's a lot riskier for the Lender due to the fact that you haven't sold your current home so there is no definite date of when you’ll be able to pay the loan back, or what the definite amount of money you’re going to receive is (i.e. the final sale price)”.

These are suitable if you need more time to sell your existing property or if you're undertaking extensive renovations before selling. While the interest rates might be slightly lower than short-term loans, the overall cost can accumulate due to the extended duration.

Choosing between short-term and long-term bridging depends on your specific circumstances and financial strategy. Working closely with a Mortgage Adviser will help you to evaluate your timeline and exit plan to determine the most appropriate option for your needs.

When it comes to transitioning between homes, bridging finance can offer a strategic advantage by providing the necessary funds when the timing doesn't align perfectly.

While bridging loans are a powerful tool to maintain momentum in the property ladder climb, they come with their nuances, such as higher interest rates and fees, so it’s important to consider this and make sure you understand the commitment involved with a solid exit strategy in place.

By equipping yourself with knowledge and preparing accordingly, you can utilise bridging finance effectively to bridge your way to your new home, ensuring a smooth and successful property transition.

As always, feel free to reach out to see if bridging finance is a suitable option for your next move.