Bridging loans ‘should be avoided if possible’

Housebuyers should avoid taking out bridging loans to tide them over between selling their own property and buying a new one.

This is according to James Molloy, product manager for AA Legal Services, who warned against this form of financing.

Bridging loans are short-term financing options that charge high interest rates and could worsen the situation of people trying to clear debt and become debt free.

Mr Molloy said such loans should not be taken on “unless absolutely avoidable”.

If the housebuyer has no option but to take on a bridging loan as a “last resort”, Mr Molloy advised that this should only be agreed for a finite period, for instance after exchanging.

He said bridging loans should never be seen as “a routine factor” in protecting a property chain.

“However, as with all financial products, appropriate advice in individual circumstances is essential,” Mr Molloy concluded.

This is Money notes that while higher interest is charged on bridging loans, taking one out could save consumers from losing money they had already spent during the purchase process.

It states that an alternative might be to remortgage and through this form of equity release, put a deposit on a new home.

The existing property is then let out and rental income is used to repay the mortgage.

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