How Can I Buy a Property Before Selling My Current Home? A Guide to Bridging Finance
Have you found your dream home, but have not yet sold your current property? This is a common dilemma facing UK homeowners. A bridging loan, also known as a bridge loan or bridge finance, could be exactly the solution you need. In this article, Eden Hawk Financial Solutions explains how a bridging loan works, what it costs, and how our team of specialist brokers can help you move forward.
What Is a Bridge Loan?
A bridging loan is a short-term loan designed to bridge the financial gap between purchasing a new home and selling your existing one. Sometimes called bridge finance, it is a secured loan, meaning the loan is secured against property, typically your current home, the new purchase, or both. The loan is usually available with a minimum term of 1 month and a maximum of 24 months. Unlike a standard mortgage, a bridge loan can be arranged within days, making it a powerful short-term finance option when speed matters.
Types of Bridging Loans: Open and Closed Bridging Loans
There are two main types of bridging loans available in the UK:
Closed bridging loan: Used when you have already exchanged contracts on your sale, but completion has not yet taken place. Because the repayment date is fixed, lenders see this as lower risk, often resulting in better rates and fees.
Open bridging loan: Used when you have not yet found a buyer for your current home. An open bridging loan is more flexible but carries slightly more risk for the lender, which may result in a higher interest rate.
Regulated bridging loans, governed by the Financial Conduct Authority, apply when the secured property is your main residence. Unregulated bridging loans are used for investment and commercial bridging purposes.
How to Use a Bridging Loan to Buy a Property Before Selling
Here is how a bridging loan could work for you:
- Assess your equity: Your loan amount will depend on the equity in your existing property. Most bridging loan lenders will lend up to 70–75% loan to value on a gross loan basis.
- Plan your exit strategies: A lender will require clear exit strategies before approving your bridge loan. The most common is the sale of your current home; another is remortgaging onto a standard mortgage. Having a credible plan to repay the bridging loan is essential.
- Apply for a bridging loan: Working with experienced bridging loan brokers means you can compare bridging loans from across the market, including specialist bridging lenders not available on the high street, to get a bridging loan on the best available terms.
- Complete your purchase: With your bridge finance in place, you can buy a property and secure your new home before your current one sells.
Bridging Loan Costs
Before you take out a bridging loan, you should understand the full bridging loan cost. Unlike a mortgage, bridge finance is charged as monthly interest rather than an annual rate, and fees and interest can accumulate quickly. The interest rate you are offered will depend on your credit history, the amount of borrowing, your loan-to-value ratio, and the strength of your exit strategies.
Interest on a bridging loan can often be rolled up and added to the loan rather than paid as monthly repayments, which helps cash flow, but means you repay more at the end of the term. Always use a bridging loan calculator before committing. A bridging loan calculator lets you model different scenarios based on loan amount, interest rate, and term, so there are no surprises.
Who Can Get a Bridging Loan? Borrowing Criteria Explained
Bridging lenders assess applications differently from traditional mortgage providers. Your credit score and credit history matter, but because loans are secured against property, the quality of your security and the credibility of your exit strategies often carry more weight. Whether you need a second charge loan on a property that already has a mortgage, or a first charge arrangement, most UK bridging lenders will want a realistic repayment plan. Commercial bridging and development finance options are also available for investment purchases.
How Eden Hawk Financial Solutions Can Help You Get a Bridging Loan
Contact Eden Hawk today to speak with one of our advisers about how to take out a bridging loan and secure your new home before selling your current one.
This service is referred to a third party. Neither Eden Hawk Financial Solutions nor Quilter Financial Planning are responsible for the service received.