What is property Bridging Finance?
You may have found a property but have not yet managed to sell your existing one. Without the proceeds from the sale of your current property, it may appear on the face of it, impossible to purchase the new one. Queue: Bridging Finance. Bridging Finance is a type of mortgage, but rather than being a long term mortgage, it is a short term agreement (typically under 12 months) which enables you to purchase a new property whilst you await the sale of your existing property.
How does property Bridging Finance work?
A bridging mortgage or loan works in a similar way to a mortgage.
You may have an existing home with or without a mortgage, and require finance to meet the short term gap between receiving the funds from the sale of your home and buying a new property i.e. your sales and purchase completion dates are different.
To meet this short-term need, a bridging loan or mortgage can be secured on your existing property if it has sufficient equity to allow you to buy the new property. Alternatively you may have funds to put in to the transaction as a deposit, therefore allowing the new property to be sued as security for the mortgage, or you may use the equity in your existing property to and the value of the new property to secure the mortgage. In that case you would have a mortgage secured on both properties.
The bridging lender will need to know the way in which you would like to structure the bridging loan, and the value and equity of the property being used to guarantee the mortgage. Bridging finance requires the overall security used as collateral for the mortgage to be way in excess of the mortgage or loan amount.
They will also need to know how you intend to exit the mortgage loan, or put more simply, how you are going to pay it off. They may insist that this aspect is in place. For example a mortgage offer, or proof that your house has sold subject to contract for example.
Bridging finance is expensive and risky. Always try to find alternatives first and only ever use bridging as a last resort.
Like any lender they will then need to asses your credit worthiness before offering a loan.
