What can I expect to pay for a bridging loan?

Posted on 26 July 2007

What sort of costs should I expect if I need to take out a bridging loan for a couple of months to stop the chain breaking? I've found a new property but have not yet sold my old house.

John

There are two types of bridging: 'open' and 'closed'. Closed bridging has an end date and, as such, is normally cheaper as it is less risk to the lender. The Open one means that there is no expected end date, which is suitable for people who aren't exactly sure when they will pay the money back.  This may be what you need as you have not got a buyer for your house yet and can't strictly commit to a date.

Bridging is relatively costly which is why people often look at remortgaging funds from their existing property first if at all possible.  If you have a lot of equity in your current property you could also be doing a buy-to-let remortgage to raise capital a deposit out of it, and consider letting it out.  This of course is an entirely different matter and only suitable if you happen to live somewhere with a good likely rent and have had thoughts about keeping an investment property.

To give you some ideas of what to expect from bridging: 

Lending is normally secured on your current property, but a survey is not normally required.  However they underwrite as tightly as a normal mortgage application so often it can take as much time and income verification as a normal mortgage application.

Arrangement fees are about 1%

If you are buying a particularly large property (£750,000 or more) you may have to pay for a second set of solicitors for the lender's protection, so expect another £800.

In terms of rates, you would be looking at a margin, often about 1% over the lenders standard variable rates so 9%.

Charcol has an exclusive arrangement with Royal Bank of Scotland that is open bridging, requiring no end date, but priced as competitively as closed bridging.  Our rate is 2.25% over base rate giving a pay rate of 8% currently.  Our arrangement fee is 0.8% for loans up to £500,000 and 1% for anything over that, plus a booking fee of £75 up front. (Typical APR 8.9%).  If you would like to access this Charcol Exclusive please contact the telephone advice team on 0800 358 5560.

I would have a shop around, just to satisfy yourself that you are getting a good price.  Try your own current account provider as they may be able to offer you something.

Katie

Categories: Bridging loans

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