Compare bridging loans for house purchases

Bridging loans are ways of getting a lot of cash, quickly, to "bridge the gap" between buying something and getting the money to pay for it.

This might be a property coming up at auction - where you need to pay within 28 days (or 56 days with the modern method of auction), but your mortgage will take longer to fully arrange. Another example is if your property buyer falls through but you need to complete your onward purchase or you’ll lose the property.

Bridging loans are generally secured on a property or several properties – although they can be secured against other kinds of assets.

The key thing to note is that while you can take them out relatively quickly, and pay them back early without penalty in many cases, they are an expensive way to borrow long term.

Before you take out a bridging loan, you must make sure you have a realistic exit strategy for the loan repayment. Without this, you could get stuck with an expensive loan or penalty fees for missing your repayment date.

Common exit strategies include:

• The sale of a property – for instance, if you are waiting for the sale of your existing home to go through

• Refinancing to a residential or buy-to-let mortgage  - for instance, if you can’t get a high street mortgage offer in time

• Cash from another source – for instance, an inheritance, a divorce, or money locked away in a savings account

How and when you repay the loan depends on your circumstances and the type of bridging loan you have. You can find out more about repaying the loan here.

Finally, before you apply, consider seeking independent financial advice. This could help determine if a bridging loan is the right option for you; otherwise, you could end up with an expensive financial burden and negatively affect your credit record.

Before you look for a loan to buy a house, it's useful to know:

• The amount you need to borrow: Work out how much you need by calculating the cost of the property, minus the cash you have available

• Loan term: Think about how long you need the loan for. The longer the term, the more it will cost you overall in interest

• If you have a mortgage: This will affect the type of bridging loan you can choose – for example, a first charge or second charge loan

• The value of the property you want to buy: This will determine your loan-to-value, which limits how much you can borrow

• Your exit strategy: Outline how you will repay the loan

Once you know all this information you are ready to look for a bridging loan to buy a house.

Before you decide to take out a bridging loan, it’s important to understand all the additional costs and charges. These can be significant, so make sure you factor them into your affordability calculations.

• Arrangement fees: Are charged by the lender. They are typically 2% of the loan amount

• Legal costs: Some lenders require you to pay their solicitors' costs in addition to yours

• Exit fees: Can be charged if you pay the loan back early. Typically these are around 1% of the remaining loan

• Valuation fees: For a surveyor to value your property

• Broker commission: Fee charged by brokers for arranging the loan

You can find out more information on the fees and charges here.