Bridging loans increasing used to maintain sale chains

Last year experienced a significant rise in the demand for bridging finance, a rise that is estimated to be about 50 per cent! The main reasons for this rise when other forms of finance are restricting their lending, are basically because other finance methods are being so restrictive.

Bridging loans have traditionally been used to bridge gaps in finances, usually during home moves when the sale of the old home can not be arranged to coincide with the purchase of the new home. In these circumstances bridging loans have proved popular because they can be arranged quickly and are specifically intended as a short term method of borrowing. When sale and purchase dates can not coincide a bridging loan can provide the finance required to complete the purchase of the new property and is repaid once the sale of the old property has been completed.

When using a bridging loan to bridge this type of gap there are two types, which are open bridging loans and closed bridging loans. An open bridging loan is when a completion date for the sale of the old property has not been determined and contracts have not been exchanged. A closed bridging loan is when a completion date has been agreed and contracts have been exchanged. An open bridging loan is obviously a greater risk to the bridging finance provider because they do not know when they are likely to have their loan repaid, or indeed if the property will ever sell for its expected asking price. As open bridging loans are a riskier proposition they tend to be more expensive than closed bridging loans.

Obviously if completion dates can not be arranged to coincide so that the sale of the old home is to complete before the purchase of the new, the problem does not require bridging finance, just alternative accommodation!

Due to the credit crunch and subsequent restrictions in lending criteria, people are finding it much harder to buy and sell property. Consequently people who want to move home often have to consider bridging finance as an option in order to be able to buy and sell property. Bridging loans have proved to be a practical solution to maintaining ever difficult sale chains, or providing quick funds for property buyers snapping up bargains before they have been able to sell their existing property.