Bridging Finance Dangers - Tips on common problems, risks and lending rules in the UK

Bridging finance is a short-term loan used to 'bridge' the gap between buying a new property and selling an existing one. It provides immediate funding and is often used when a property transaction requires quick completion. Borrowers typically repay the loan once they sell their property or secure long-term financing.

Bridging loans are used for various reasons, including purchasing a property at auction, buying a new home while waiting for the sale of an existing one, property development projects, and refinancing short-term debts.

The main risks include high-interest rates, short repayment terms, and the potential for property devaluation. If properties do not sell or additional finance isn't secured in time, borrowers could face financial difficulties or even repossession.

Funds from a bridging loan can be available in as little as 24 to 48 hours after approval, depending on the lender's processes and your individual circumstances. This speed makes them appealing for time-sensitive transactions.

Lenders typically assess the value of the property or asset being used as security, the borrower's creditworthiness, exit strategy (how and when the loan will be repaid), and sometimes the borrower’s income and overall financial status.

Bridging loans can be regulated or unregulated in the UK. Regulated bridging loans are those that are secured against a borrower’s home and are regulated by the Financial Conduct Authority (FCA). Unregulated loans, often for investment properties, aren't covered by the same protections.

Yes, bridging loans can be used for business purposes, such as purchasing commercial property, expanding business premises, or refinancing corporate debts. For commercial uses, these loans are usually unregulated.

Common pitfalls include underestimating costs, failing to have a solid exit strategy, not shopping around for competitive rates, and not understanding the full terms and conditions of the loan agreement.

Interest rates for bridging loans in the UK can range from 0.4% to 1.5% per month. Rates vary based on the lender, type of property, loan amount, and borrower's situation. It's important to compare rates from different lenders.

An exit strategy is a plan for repaying the bridging loan, typically through the sale of property, refinancing to a traditional mortgage, or another financial arrangement. Lenders require a clear exit strategy as part of the loan approval process.

Bridging loans are short-term, typically lasting a few months to a year, with higher interest rates, while traditional mortgages are long-term with lower rates. Bridging loans offer faster access to funds and are interest-only.

While having good credit can make obtaining a bridging loan easier and cheaper, some lenders specialise in offering bridging finance to individuals with adverse credit by focusing more on the property's value and exit strategy.

Fees may include arrangement fees, valuation fees, legal fees, and exit fees. These can add significantly to the overall cost, so borrowers should request a full list of potential fees before committing to a loan.

Yes, most lenders offer bridging loans up to 75% LTV, although some may be willing to consider higher LTVs depending on the borrower's circumstances and the specific property or asset being used as security.

To minimize risks, ensure you have a detailed and feasible exit strategy, fully understand all costs and fees, borrow only what you need, and consider speaking to a financial advisor or mortgage broker for expert guidance.