"While the term 'bridging loan' may sound self-explanatory, our research makes clear that far too many buyers and sellers are still in the dark as to how this type of fast finance can help unshackle buyers from stressful and frustrating property chains"
- Ryan Etchells - Together
Bridging loans are increasingly becoming a popular solution for property buyers and sellers looking to avoid stressful and costly property chains, according to a new survey from Together.
Nearly a third of homeowners (28%) who have used this type of short-term secured loan did so specifically to avoid a lengthy property chain. Of those, 29% said it helped make their 'chain-free' offer more attractive to sellers.
Despite their growing use, awareness of bridging loans remains limited. One in five homeowners (19%) surveyed said they had never heard of bridging loans, and 13% admitted they did not know how they worked.
Typically lasting up to 12 months, bridging loans provide fast and flexible finance to borrow the funds needed to buy a new home quickly while waiting for the sale of an existing property. They give buyers extra time to secure a sale at an agreed price and can also be used to seize short-term opportunities, such as auctions, or to fund refurbishments that increase a property’s value. Loans are usually repaid through the sale of the current property or by refinancing to a longer-term mortgage.
Two-fifths of respondents (40%) said more education on finance options when buying property would be helpful, while a third (31%) felt that understanding the potential costs of a broken property chain would better highlight the benefits of bridging loans.
“While the term 'bridging loan' may sound self-explanatory, our research makes clear that far too many buyers and sellers are still in the dark as to how this type of fast finance can help unshackle buyers from stressful and frustrating property chains," comments Ryan Etchells, chief commercial officer at Together.
"It is important to help debunk these myths so buyers and sellers are aware that there is a viable option to longer-term mortgages to help you secure your ideal home.”
He also shared tips to dispel common misconceptions:
“You cannot repay the loan at any time; you must wait until the full term has ended” A fifth (19%) of homeowners mistakenly believe early repayment is not possible. In reality, paying before the end of the loan term can reduce interest costs, so borrowers should plan their exit carefully."
“You can't apply for a bridging loan if you're self-employed, retired, or have poor credit”: A third (33%) of homeowners assume they may be ineligible. Bridging lenders consider a wide range of applicants, including sole traders, freelancers, those with less-than-perfect credit, and retirees looking to downsize."
“You can only borrow up to 50% of the property's value”: Twenty-nine per cent of homeowners think this is the limit. In fact, lending can go up to 75% of a property’s value, although maximum loan-to-value ratios may vary depending on property type."
“There are monthly repayments on most bridging loans”: More than half (56%) of homeowners expect to pay two mortgages at once. In practice, Together personal bridging loans have no monthly repayments. Interest is charged monthly and rolled up to be repaid in a lump sum alongside the original loan and any fees. Once the sale completes, the loan is repaid in full."
“Bridging loans are prohibitively expensive”: This is not necessarily true. Costs depend on circumstances and short-term property plans. Bridging loans are suitable for temporary needs, such as managing cash flow, bridging between sales and purchases, avoiding property chains, or completing short-term projects quickly."
