Open Bridging Loans
Probably the most common type of bridging loan is what is known as an “open bridging loan”. Previously lenders have been more cautious of securing this type of loan as it does not have a guaranteed exit route. This attitude has changed in recent years and although it may be viewed slightly differently it will still attract a lower LTV and a higher interest rate.
An open bridging loan is available to someone with a less firm exit route i.e. someone who is looking to purchase a new property prior to their current property selling. The potential term of the open bridging loan could be a lot longer than with a closed bridging loan and this makes it riskier to the lender and as such can be more costly.
Reasons for Using Open Bridging Loans
Open bridging loans are easily the most common type of bridging loan and the need to apply is usually because an applicant has seen a property they want to buy before their current property is sold, or in some instances even marketed. Bridging lenders are accustomed to this scenario, however as it is normally a person’s own residential property which will be used as security, the broker and lender dealing with this type of transaction must be authorised and regulated by the Financial Conduct Authority or FCA to enable them to do so. Additionally, this type of bridging loan example is often required by applicants who are either retired or approaching retirement and want to downsize and who may prefer to purchase a new house and make it comfortably habitable before moving out and selling their existing property.