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Bridging Loans vs Mortgages: Which Should You Choose?

Moneymagpie Team 25th Jun 2024 No Comments

Reading Time: 2 minutes

When it comes to purchasing a new property, most of us need some sort of financial backing to cover the full cost. The most common form of financial backing is with a mortgage secured against the property. However, mortgages can take a while to get approved and can be restrictive on who can borrow money and for what reasons. Fortunately, there is an alternative to mortgages that can help you secure the funds you need quickly. Let’s talk about bridging loans and whether you should choose one over a mortgage for buying a property.

What is a Bridging Loan?

A bridging loan is a short-term financial product that allows you to borrow a certain amount of money against the value of a property. It is known as a bridging loan, as it is usually used to bridge the gap between the sale of an existing property and the purchase of a new one. Depending on the value and condition of a property, a bridging loan can range between £50,000 to £500 million. As such, for short-term financial support, bridging loans offer a useful alternative to mortgages.

How Easy Is It to Obtain a Bridging Loan?

The first thing to do in order to set up a bridging loan is to find finance brokers who are able to provide such loans. Bridging loans can be set up quickly and can be used to cover properties in any condition. When looking at what bridging loans a finance broker can provide, consider how much you can borrow, the interest rates you will need to pay, how flexible your loan is, and how soon you will need to pay it back. Be aware that bridging loans are only meant for short-term financial support and should be paid back within a year or two at the latest.

The Pros and Cons of Bridging Loans

Bridging loans have a few benefits that make them a popular alternative to mortgages. First, they can be arranged within days, whereas many mortgages take weeks to secure, making them a better option if you need finance quickly. Secondly, bridging loans can be used to cover a range of properties, no matter what their condition. Lastly, they are more flexible than mortgages, allowing you to use them to finance not just property purchases but also refurbishments and restorations as well. However, due to their high-risk nature, bridging loans often have higher interest and are not suitable for terms of longer than a year.

Is a Bridging Loan Better Than a Mortgage?

Whether a bridging loan or a mortgage is right for you depends on your individual circumstances. If you need financial backing for a property quickly and aim to pay it back in the short term, then a bridging loan is for you. Likewise, a bridging loan will give you that flexibility if you need financial backing for any refurbishment or restoration projects. However, if you require a stable, long term loan that allows you to pay off your property at a fixed interest rate, then a mortgage will be a better option.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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