Bridging loans risk
Bridging loans must be backed up by an exit strategy to avoid risk, according to the Council of Mortgage Lenders (CML).
High-earning professionals such as barristers, solicitors and doctors could be lulled into a false sense of security by bridging loans but need to remain aware of the high-interest rates paid over the long-term.
A spokesperson for CML said: “Bridging finance is the main…route where there is a mismatch between the purchase of a property and the sale of the former property”
However, she added that taking a bridging loan without a prepared exit strategy “does not make any sense” and is an essential consideration for both lender and borrower.
Financial advisor This Is Money explain that lenders ordinarily put a 12-month limit on a bridge.
However, on high-value property purchases an interest rate of around 2.5 per cent above the base rate plus a variable arrangement fee could potentially be very costly, even over this term.
Although carrying its own risks the alternative of remortgaging the unsold property on a buy-to-let basis can be a better option.
