What are the mechanics of a bridging loan and what should the consumer concern themselves with? The often advised considerations of a bridging loan are to confirm the rate payable, depending on charge type anything between .95% on first charge upwards to 1.75% on second charge and/or blended rate. Since Mday (31/10/2004) within the United Kingdom and the involvement of the FSA all charges will be clearly identified within a KFI (Key Features Illustration). There will undoubtedly be an arrangement fee of anything between 1 to 1.5% of the loan advance, however the consumer must be advised and be made aware of any 'exit' fees. What is also commonly overlooked by the consumer and homeowner and a vital pre requisite is an identifiable exit route out of the agreement.



Closed bridging finance is available to homeowners who have already exchanged on their intended purchase property, should completion after exchange be a drawn out affair the homeowner has the peace of mind that their property will sale i.e. an identifiable exit route.

Open bridging finance is far more high risk for the homeowner and should not be entered into lightly. This type of bridging is typically for homeowners who have found their ideal property but their sale would seem protracted and/or a buyer has not been found. Open bridging would typically attract an additional 1% over closed bridging confirming the higher risk. Lenders will also, as part of their underwriting criteria, ensure that the security property has plenty of equity. The lender would also want to see a mortgage offer along with proof that your existing property is being actively marketed.

While illustrating open bridging as somewhat high risk there are also many positives to bridging finance. There would be typically no valuation or legal fees as legal work is usually done 'in house'. With the consumer also encroaching into the residential and commercial property auction arena, bridging loans are also an ideal means of securing the property at auction, exchange would happen on fall of the hammer and usually leaving 20 working days to completion.

Looking at the wider picture and asides from property bridging loans also offer such facilities as "buying out" a bankruptcy which can allow a consumers home and business to survive along with improving cash flow. This is also an ideal alternative to an I.V.A (Individual Voluntary Arrangement) which interferes with a credit record for a considerable period of time. In addition the fees involved in an I.V.A. can be very substantial and generally unsuitable unless there are multiple creditors.

Buy to let investments and self build projects also benefit from bridging finance. A buy to let property where a 100% retention might be imposed would be if the property is considered either uninhabitable or there is no bathroom or toilet. With self build projects or development the money is released in stages, each stage being signed off by the lenders appointed architect and then the money released.

Other instances may well be when the trustee of a deceased estate are unable to obtain probate because of unpaid taxes. if there is insufficient cash in the estate and the property can not be sold bridging is the answer. Repossessions can also be relieved even if the homeowner has received the judgment. One common misconception is that once evicted the dispossessed homeowner has lost the chance to recover their home. This is not the case as any mortgagee will want to recover their money as quickly as possible without the fuss of marketing. To calculate current bridging loan finance monthly charges on first, second and blended rates use the recently designed bridging loan calculator.