Funding

Buy to Let

Well you may ask because the use of bridging loans has changed out of all recognition over the last 18 months as the so called credit crunch has taken its grip on lending.

When bridging loans were first used by the high street banks, they were used for exactly what the title implies. To bridge the gap between a sale and purchase, where the sale would go through after the date of the purchase. In these circumstances the equity from the sale is not available at the time of the completion of the purchase. The missing deposit or equity is the amount that the bridging loan would provide.

Because we have a sale and purchase with an exchange of contracts on the same day, and a fixed completion date, this would be called a closed bridge, as the completion date is set in stone, unless it's a new build, and could be on or before the agreed date.

Lenders like a closed bridge because for them there is little or no risk, the exposure of the funds is known from day one and the lender is aware of the profit that they will make, with a one in a million chance of something going wrong. The accepted time scale for a bridging loan would normally be for around 28 day's.

The product has now evolved, and the facility can be set up for a period of up to 12 months and has become better known as short term finance for the longer term loans. In these circumstances we are looking at an open bridge because we are unable to arrange a commercial mortgage 12 months in advance to take out the bridge. The lender who is funding the bridge would need some assurance that the client would be in a position to arrange a mortgage which is not always very easy to do when you are looking so far into the future.