Knowing the difference between open and closed bridging loans can save you a lot of money while still providing the flexibility needed in the property market
There are two different types of bridging loans available to property investors – and knowing your open bridging loans from your closed bridging loans can save people an awful lot of money. Choosing a closed bridging loan, where possible, can provide the flexibility investors need in the property market but at a much lower cost.
Bridging loans are provided for many reasons, not just property deals. Whenever there is a gap between someone needing the funds and the time when they can raise the cash, there is potentially the need for a bridging loan.
Different types of bridging loans
Sometimes the delay between the one circumstance and the other – between buying one house and selling another to pay for it, for example – is a known, fixed period of time. There are times, however, when the length of delay is not known.
This is when an open bridging loan is called for. Open bridging loans have no fixed end date and can continue indefinitely. They are relatively expensive, however.
Closed bridging loans are available for when there is a fixed date when the new funds will become available (for example if there is a completion date on the property being sold). Because the date the loan will be repaid is known, closed bridging loans are cheaper than open ones.
Bridging loans cost comparisons
In one typical example, one of the "big four" High Street banks offers both closed bridging loans and open ones. For closed bridging loans they charge an annual percentage rate (APR) of the Bank of England base rate (currently 5.5%) plus 1%; on top of that there is an arrangement fee of 0.5% of the value of the loan.
For open bridging loans, they charge the Bank of England base rate plus 2% and an arrangement fee of 1% of the value of the loan. This means that at current rates a month-long bridging loan of £100,000 would cost just over £1,000 if arranged as a closed bridging loan – but more than £1,600 if it was an open bridging loan.
A place for open bridging loans
Obviously there is a place for open bridging loans – if you think your property will sell in one, two or three months' time for £5,000 more than you are being offered today then an open bridging loan would be a worthwhile investment.
But knowing when you can choose a closed bridging loan can clearly save thousands of pounds on a single deal.
Faster Bridging Finance has been established to offer property buyers a fast, hassle-free way to finance their property purchases. No more waiting for funds to be released or organising two mortgages in order to get the funds you need; our system allows people to concentrate on the business of buying their property rather than worrying about how to finance it.
Whether you're buying a single property or you have a portfolio to look after, Faster Bridging Finance can help. Just fill in our online enquiry form to get your free report that tells you how you can get better bridging finance.