Bridging loans can be used for a variety of reasons, including property investment, buy-to-let and development.
However, more recently, there has been a growing trend among borrowers to use bridging loans because high street and private banks are taking longer to process applications for larger home loans.
Some borrowers are also viewing bridging loans as a simple alternative to mainstream lending.
While a bridging loan may sound tempting, if you’re thinking about taking one out, you need to think carefully about your exit strategy. This might, for example, involve getting a mainstream mortgage or a buy-to-let mortgage, or selling the property altogether.
The problem is, you may not have any guarantee of being accepted for a mortgage with a mainstream lender after having taken out a bridging loan. This could put you at risk of losing your home.
The FCA is concerned that advisers could be recommending this type of loan too quickly when it may not be the best solution.
Crucially, if you’ve not used this type of finance before you need to tread carefully, as there are often hidden and hefty legal fees and additional administration fees that are not always made clear.
All of these mean the cost of your bridging loan could soon mount up.
Put simply, bridging loans should not be viewed as an alternative to mainstream lending.
Bridging lenders can come in all shapes and sizes, ranging from one-man bands up to professional outfits regulated by City watchdog, the Financial Conduct Authority (FCA).
If you want to take out a bridging loan, it’s advisable to speak with one of our FCA-regulated brokers because they will only recommend a bridge if it is appropriate for you and your particular circumstances.