Bridging Loan

A bridging loan usually refers to a short term loan extended to someone to enable them to purchase a new house, despite not having the sale proceeds of an existing house.

If the sale of the existing house has been contracted (i.e. contracts have been signed and exchanged) then the bridging loan is known as a closed bridging loan. If not, it is known as an open-ended bridging loan.

Bridging loans are exceptionally dangerous as the burden of interest that can accrue in the event of any delay in the sale of the existing property can quickly bring a person to their knees.

Generally any bridging loan lender will want proof that your current property is on the market and usually will ask to see a copy of the mortgage offer for the new property. As bridging loans are often for substantial amounts, they also need to know that you can cover the interest payments and how you will settle the loan if the sale falls through.

Normally a bridging loan will be limited to a 12 month period. For obvious reasons, bridging loans should be avoided as they can be financially crippling, especially if open ended. Always take professional advice before considering a bridging loan.

Our verdict

Best avoided at all costs, both in terms of getting one, and if a family member or friend asks for one, also in terms of giving one.

Jargon Buster

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