Residential bridging
The little-known method to secure a new home before your current one sells.
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What is a residential bridging loan?
When it comes to buying property, timing can be everything. Whether you're buying a new home before selling your current one or need to fund renovations before securing long-term financing, bridging loans could be the answer.
A residential bridging loan is a short-term loan that helps you move quickly in property deals. It's designed to cover the gap between buying a property and securing a longer-term loan, like a mortgage.
It's often used in situations where you're waiting for funds to come through, when selling a house or waiting for other financial arrangements to fall into place. Bridging loans can help you buy a property before your sale is completed or help you access funds for urgent home improvements.
Why consider a residential bridging loan?
Whether you've found your dream home or need to act fast on an investment, a bridging loan can help you secure the deal and get your property moving.
Buying before selling
It's a classic scenario for many homeowners: you've found your dream house, but your current property hasn't sold yet. A bridging loan can cover the gap, allowing you to buy the new property and pay it off when your existing property is sold.
No waiting around
In some cases, you may need a bridging loan to act as a temporary solution while you wait for a traditional mortgage. This could be because the property you're buying needs some work before it's eligible for a standard mortgage, or you need auction finance to secure your property quickly.
Property renovations
If you're looking to buy an investment property or a home that requires some work, a bridging loan can provide the funds you need to get started on renovations. Once the property is up to standard, you can then refinance it into a traditional mortgage.
Before applying for a bridging loan
Taking out a bridging loan isn't something you should rush into. Below are some key things to consider before taking one out.
Costing the loan
Bridging loans are typically more expensive than standard mortgages. While they can be a lifeline in certain situations, it's crucial to weigh the cost against the benefits. Interest rates on bridging loans can be higher because they're seen as riskier by lenders, and most of the time, they're only available for a short period (usually six to 12 months).
Tip: There may also other fees involved, such as arrangement fees and early repayment charges, which can add to the cost of the loan.
Repayment plans
Bridging loans are typically repaid in one lump sum once the property is sold or once long-term financing comes through. But there are different repayment structures to consider. Some loans may require monthly interest payments, while others may allow the interest to be rolled up into the loan balance until the term ends. You'll need to consider which option works best for your financial situation.
Tip: If you need to buy a property before selling your current one, you might want to look for a loan where the interest is rolled up. This would mean no monthly payments, but the interest would be added to the overall amount you owe at the end.
Lender requirements
Bridging loans aren't as widely available as traditional mortgages, and not all lenders will offer them. Lenders will look at factors like the value of the property, your credit history, and your exit strategy. That's the plan for how you'll repay the loan, such as selling your home or securing a long-term mortgage. You'll need to have a clear, realistic plan to show the lender you'll be able to repay the loan.
Tip: If you're looking to buy a property and haven't yet sold your current home, the lender may want to see evidence that your property is listed and has interested buyers. This gives them confidence that you'll be able to repay.
Alternatives to residential bridging loans
While residential bridging loans can be a great solution, they're not the only option available.
Traditional mortgages
If you don't need immediate funds or you have more time to wait for approval, a traditional mortgage might be the best option. These are generally lower-cost, especially if you have a strong credit score and a large deposit.
Personal loans
For smaller amounts of money, a personal loan could be a workable alternative. It won't be secured against property, but it could provide the funds you need for a smaller gap in financing.
Home equity loans
If you already own property, you might be able to take out a home equity loan or line of credit to cover the cost of buying another home or financing renovations.
Summing up
A residential bridging loan can be a great way to move forward with property deals when you need quick access to funds. They're designed to give you temporary support while you wait for long-term financing or a property sale to come through.
It's important to weigh the cost, terms, and your exit strategy before diving in. If you're in a hurry to make your next move, a bridging loan might be exactly what you need.
Frequently Asked Questions
How long can I take out a bridging loan for?
Typically, bridging loans are short-term solutions, with terms ranging from a few months to a year. Most people take them out for around 6 to 12 months, but it depends on your specific circumstances.
What's a second charge bridging loan?
A second charge bridging loan is secured against a property with an existing mortgage (the first charge). It lets homeowners access while leaving their existing mortgage in place.
How quickly can I get a bridging loan?
Bridging loans are designed to be quick and can often be arranged in just a few days, depending on the lender and your circumstances. This makes them a great option when you need to act fast in property deals.
What's a commercial bridging loan?
A commercial bridging loan is short-term financing used to quickly purchase a commercial property or buy to let property, helping speed up the lending process for business or investment opportunities.
Are residential bridging loans regulated?
Regulated bridging loans are overseen by the FCA and usually involve residential properties used as a main home, while loans for commercial buildings are typically unregulated.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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