Can You Still Get Closed Bridging Loans?

By John Goodwin
Closed Bridging Loans used to be readily available for those who had an agreed exit route already arranged by either the sale of the property or by re mortgaging the property. Now the only option is Open Bridging Loans. So what? you say. Using closed bridging finance it was possible to borrow the amount of the re mortgage offer even if this was greater than the purchase price of a property, at a fixed rate for a fixed period.
 

Why has this happened? To understand this we will look at the two types of Bridging Finance that has traditionally been available. There are mainly two types of bridging loans, closed bridging where the exit is pre arranged and open bridging where it can be anywhere within a pre agreed time scale. With Open Bridging Loans the loan can be for up to 12 months with repayment allowable anytime within that period. Traditionally bridging finance has been short term finance that can be quickly arranged on residential, commercial properties or land. The maximum loan is based on the Loan To Value (LTV) of the ratio of the loan to the value of the property expressed as a percentage. In today's market the maximum LTV is 70%, this has reduced from 80% 18 months ago and, if the financial crisis continues, it will go down further. As there is 30% equity in the property in the lenders favour bridging loans are generally non status.
 

With Closed Bridging Loans the borrower used to have to provide evidence of the exit route to the lender. This would include proof of an agreed sale or an offer from a mortgage lender. However, since the credit crunch this has not been sufficient as buyers walk away from deposits even when they have exchanged contracts and lenders withdrawing mortgage offers at the last minute. So what do you have to do to receive an offer of Closed Bridging Finance? If you are purchasing you will need a mortgage offer, proof of deposit confirmed by your solicitor, contracts exchanged and funds requested to be drawn down. If you are selling the property you will need confirmation from your solicitor of proof of funding for the purchaser and the purchaser to have paid a non refundable deposit and contracts to have been exchanged.
 

We conclude that when all of these conditions have been met for a closed bridging loan it is not worth taking out and Open Bridging would have been the best option from the out set.

 

 

 

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