Bridge loans

To make sure you’re choosing the right kind of bridging loan, here’s what you should consider:

Is this a first charge loan or second charge loan?

A second charge loan applies if you already have a loan secured against a property that already has an outstanding mortgage. So for improvements such as extensions, you’d need to take out a second charge bridging loan. The distinction lets the lender know who has priority in the repayment if you can’t pay off the loan by the end of the term. If however you’re taking out a new loan secured against the property, you’d qualify for the first charge loan.

Are you paying fixed or variable rates?

You can choose a fixed or a variable rate on a bridging loan. A fixed rate gives you the security of knowing exactly how much interest you will pay on the loan, but fixed rates tend to be slightly higher than the variable rates on offer. With a variable interest rate the rate can change from month to month.

There are a number of advantages when opting for a bridging loan for high-cost transactions:

• You’ll receive your money quickly
• You can borrow a large amount of money
• Flexible borrowing might apply 

The drawbacks to bridging loans include:

• The loan is secured against your property, so you risk losing ownership if you can’t repay
• The high interest rates that come with the loan – this is because you pay for the flexibility and swift payment
• You’ll be charged a number of fees so it’s a costly option

While a bridging loan can be arranged quicker than a mortgage, it can still take anything from a few days to several weeks to complete. This is because it’s a secured loan, and if you’re using your property as collateral, a valuation is usually needed, as well as credit checks.

Whether you can get a bridge loan with bad credit will depend on your personal, financial situation. If you’ve struggled with credit in the past, you may still be approved for a bridging loan as you’ll be using your property (or other valuable asset) as collateral. Certain lenders may be more inclined to lend money to someone with bad credit if they’re putting up security. Just keep in mind that if you struggle to keep up with repayments, you’ll run the risk of losing your home.

Representative 29.9% APR

As a bridge loan requires you to put down your current home or other valuable asset as collateral, you’ll need equity in your property. How much equity you’ll need for a bridging loan will depend on the provider, but our partner Fluent asks that you have at least 35% equity. 

Whether a bridge loan is the right choice for you will depend on your personal, financial circumstances and whether you’re willing to use your home as collateral. Like any secured loan, a bridge loan carries risk. You could lose your home if you struggle to keep up with repayments, so make sure you consider all your options before you apply.

Not sure if a bridging loan is the right option for you? Here’s some potential alternatives:

Second mortgage 

If a bridging loan isn’t right for you, you could consider getting a second mortgage. Second mortgages use the capital (or equity) in your home as security

Personal loan 

Personal loans are unsecured, so you’re not borrowing against your property and your home isn’t at risk. But this means there’s a limit to how much you can borrow, usually up to £25,000

Remortgage

Restructuring your existing mortgage can be a way to release funds – if you have sufficient equity built up in your home. You can switch to a new mortgage deal with your existing lender or move to a new lender, increasing your mortgage to release cash. It’s also a good chance to find a lower mortgage interest rate if possible

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