The most common reason for arranging bridging finance is when a property needs to be purchased, but an existing property has not yet been sold. There is a whole segment of the finance market, bridging lenders, that specialise purely in providing funds for this. In recent years fierce competition has meant a drop in the rates being charged but compared to standard mortgage finance the costs are still very high.
A traditional bridging finance arrangement of this type usually incurs a set up cost of around two percent, and monthly costs or around one percent of the whole amount borrowed. In addition there are legal fees and valuation costs to consider.
This route can still make a lot of sense for certain circumstance. An extra six months to market a property may mean that the higher sale value easily pays for the cost of bridging compared to accepting a ‘fire sale’price, and that the new property is acquired quickly with no reliance on the sale of the existing property completing on time.
This is not the only form of bridging finance though. If you are downsizing or have have invested assets then a private bank facility may be appropriate. This form of finance can be incredibly cheap compared to the traditional route. We regularly arrange facilities with a monthly cost of around 0.25% of the loan and no early redemption penalties. You should still expect to pay an arrangement fee of around 1% and a private bank would also want some form of ongoing relationship.
If you would like to discuss if this would work for you, or if traditional bridging would be more appropriate, then please do call and we can talk this through with no obligation.
Some forms of Bridging Finance are not regulated by the Financial Conduct Authority