Bridging Loans

Overview

Bridging loans are short-term, secured loans designed to provide quick access to funds, typically for property transactions. They are often used to “bridge the gap” when buying a new property before selling an existing one12. These loans are usually repaid within 12 months, though some terms can be as short as a few weeks.

There are two main types of bridging loans: open and closed. Open bridging loans have no fixed repayment date but are generally expected to be repaid within 12 to 24 months. Closed bridging loans have a set repayment date and are typically cheaper due to their fixed terms12. Additionally, bridging loans can be classified as either first charge or second charge loans, depending on whether there is an existing mortgage on the property2.

While bridging loans can be useful for quick property purchases, they come with high risks and costs. The loan is secured against an asset, usually a property, meaning failure to repay can result in losing that asset1. Interest rates on bridging loans are often higher than standard loans, and they require a clear exit strategy to ensure repayment2.

It’s crucial to thoroughly research and consult with a financial advisor before opting for a bridging loan to understand the risks and ensure it suits your financial situation12.