Bridging Loans When you are moving home, you may find that you need to come up with the money for your new home before the sale on your old home is completed. It is unlikely that you have the finances ready to pay for your new home outright so you will need to get a loan to cover the overlap. This is known as a bridging loan, because it bridges the gap between the purchase of your new home and the sale of your old home.

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Bridging loans are short term loans and most financial institutions, such as banks and building societies, although it's probably quicker and easier to arrange one with your current mortgage lender.

You are effectively taking out a second mortgage, which is secured against your old home, when you take out a bridging loan. For example, if you are buying a home that costs £250,000 and have £25,000 to pay as a deposit, you will need to borrow the remaining £225,000 in order to make up the remaining sum. This money should easily be advanced to you by your lender but it shall be on the understanding that when your home has been sold, you will be able to pay it back to them.

You will have to pay interest on the loan until you sell your old home. Your lender may charge a higher rate of interest for the loan than they charge on your mortgage, and you may also have to pay an arrangement or management fee. Once your home is sold, you can pay back the loan.

In the majority of cases we have found that those people who take out a bridging loan will not have to pay too much as long as the gap between buying and selling the properties involved is kept short.

However, if it takes a long time to sell your old home, or the sale falls through, bridging loans can end up being a very expensive proposition. This will obviously depend upon the size of the loan that you took out as well as the interest rate you are being charged so only consider a bridging loan if you run out of options.

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