The simple answer to the question “Are all bridging loan rates the same?” is ‘No’.
That’s because bridging loans are a short-term finance offering to suit an applicant’s circumstances, so the lender’s criteria will dictate how much interest they will charge.
Typically, bridging loans are being used by people buying property to help ‘bridge the gap’ between selling their current home and then completing on the purchase of their next.
The loans work by enabling homeowners who may be struggling to find a buyer to move into their new home before selling their existing one.
However, since the credit crunch which led to banks tightening their lending criteria, bridging loans in the UK have grown quickly in popularity.
One reason for this is that the lenders don’t have similar lending criteria and will arrange a loan that ranges from several thousand pounds to several millions of pounds in just a few days.
This will depend on the security being used by the bridging loan applicant for accessing the money.
Bridging loan interest rates UK
Essentially, the size of the loan will dictate the bridging loan interest rates UK that a lender will charge and the value of the security will also have an influence.
The duration of the loan may also affect the rates and borrowers also need to appreciate whether they are applying for a ‘closed’ or ‘open’ bridging loan.
The difference between the two terms is that the applicant knows when they will be able to repay the money, which will be known as a closed loan, whereas for those who do not know then their bridging loan will be open.
For example, for those who are using a bridging loan to buy another house, they will know that when they complete on their current home sale then they’ll have the money to repay the bridging loan.
For those who do not know when the money will be available for repaying their loan, then they will have to find the money when the loan’s term comes to an end, this is usually for 12 months but some lenders will forward money for 24 months.
The purpose of the loan will also vary and while most applicants will be buying property, particularly landlords boosting their portfolio and developers buying a property at auction, other borrowers have used the quick application process for other purposes.
These may include having to settle an unexpected tax bill quickly and refurbishing business premises or even buying stock for a sales promotion.
Shopping around to find bridging loan rates UK
The restrictions, if any, will be detailed by the bridging loan lender and it’s always worthwhile shopping around to find bridging loan rates UK that suit you and your needs.
When it comes to understanding bridging loan rates, it will become apparent that the interest rates will be much higher than a high street bank will charge, for example.
That’s because the loan is for the short-term and usually the interest rate is expressed as the rate per month.
There may also be an administration fee to pay as well and some lenders will have an exit fee when the loan falls due – not all lenders will charge an exit fee.
A potential bridging loan applicant will also need to understand variable and fixed rates, since just like a mortgage, bridging loan rates offer different interest rates too.
A fixed rate for the loan means the lender will apply the same interest rate across the loan’s term, so your monthly repayment will be the same.
Opting for a variable rate bridging loan
For those opting for a variable rate bridging loan, then the interest rate may change during the loan’s term and the payments could change along with it.
Another influencing factor on the interest rate will be whether the lender has a first or second charge on the security property.
The better rates will be for those offering a first charge, which means the lender will be first in line to be repaid when the security property has to be sold, whereas dearer rates may be levied on a second charge security property.
If you are looking for a UK bridging loan then you may realise that there are no comparison sites for these since the loans are tailored for a specific purpose and the applicant’s financial situation.
If you would like more help and information about bridging loan rates and what you can use the finance for, then it’s worth contacting the friendly team at the BridgeCrowd today.