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* Your home could be repossessed if you do not keep up with repayments
If you’re in the process of buying a new property but need to complete that transaction before the sale of your existing home goes through, one option that could help to ‘bridge’ any temporary financial shortfall this might cause is a bridging loan.
As the name suggests, a secured bridging loan is a type secured loan that uses an existing asset (such as a property) as security, with the resulting loan serving to bridge a short term shortfall in capital.
As with homeowner loans, most lenders will only be willing to let you borrow against the equity you currently have in the property you’re using as security. Your equity is the proportion of the property’s value that is mortgage-free.
Can I take out a bridging loan if I already have a mortgage?
Yes, but only if part of your property’s value is mortgage-free (either because you’ve paid off that portion of the mortgage, or because the property has risen in value meaning you now have a lower loan-to-value (LTV) ratio).
If you took out an interest-only mortgage (and your property hasn’t risen in value since you purchased it), or if you recently remortgaged your property at a higher LTV in order to release some of the equity, then it’s unlikely you will qualify for a bridging loan.
How much can I borrow when I take out a bridging loan?
It’s difficult to answer that question because it will depend on a number of different factors, including:
- How much equity you currently own in your property
- Your gross income
- Your typical expenses and outgoings
- Your occupation
- Your credit history
- Your other debt obligations.
The best plan is to speak to one or two lenders in order to see what they’re able to offer you.