Before 2007, bridging loans were sometimes regarded as the last resort to raise finance to purchase a property, but this is no longer the case. The ways in which bridging loans are used and how they work has changed considerably over the last few years.
Many lenders used to see bridging loans as risky, so they charged large interest rates of between 12% and 20%, but now they are available at much lower rates.
The majority of bridging loans are still used to break a housing chain by providing the funds to purchase a new house until an existing one is sold. There are many other uses for bridging loans, including property development, self-build houses, property auction finance and equity release. Bridging loans can even be used to pay large tax or VAT bills.
Most bridging loans are secured against property, but other forms of assets can be used, including jewellery, cars, art and pensions. Borrowers with high-value assets but little cash can raise money secured against their assets and not just property.
An major advantage of bridging loans is that the time from putting in an application to receiving the funds is very short, often coming in at two days or less. This makes them an ideal way to raise short-term finance quickly.
Currently, there are more than 200 lenders in the bridging finance market. They have turned bridging loans from a marginal product to a more mainstream one, and fierce competition between lenders has kept interest rates and fees low.
