Bridging finance is a short-term loan that can help homebuyers when there’s a gap between the sale of their current property and the purchase of a new one. 

It’s a popular option for people facing delays in property chains and has grown to a £7 billion industry in the UK in the last 10 years. However, it comes with significant risks of high costs and repossession if not repaid and is often better suited for property developers and investors, rather than regular homebuyers.

We speak to some leading bridging lenders and brokers in the space to get their insights of whether bridging finance is worth using if you are a household and moving home.

A bridging loan helps to bridge the gap

“When moving home, one of the most common challenges is the property chain,” explains Dave Beard of price comparison site, Lending Expert. 

“This occurs when multiple transactions are linked together, and the sale of your home depends on someone else buying their property. Property chains can delay the process or even cause sales to fall through.”

“In such cases, bridging finance can be useful as it allows a buyer to proceed with the purchase of a new home without having to wait for the sale of their current one. The loan effectively “bridges” the gap, providing the funds needed to complete the purchase.”

Bridging finance helps you to move quickly by making you a cash buyer

“Bridging finance can be particularly helpful for those who need to move quickly,” explains Aiman Maklad of Blue Square Capital. 

“For example, if you find your dream home but are unable to sell your existing property in time, a bridging loan can give you the flexibility to secure the new property while waiting for your home to sell. In a fast-moving property market, this can be a huge advantage.”

A report by Savills shows that UK house prices rose by 10.4% in 2021, and the competitive nature of the market means that buyers often need to act fast to secure a property. Bridging finance can provide that speed, allowing buyers to move without being held back by delays in selling their existing home.

Bridging is not without its risks

While bridging finance can solve problems with property chains, it is not without its risks. Bridging loans are expensive, with interest rates much higher than traditional mortgages. 

MT Finance shows that the average bridging loan interest rate can range from 0.44% to 2% per month, which can quickly add up. For a typical homeowner, this can be a significant financial burden, particularly if the loan is not repaid within the expected timeframe. In addition to high interest rates, there are also set-up fees and exit fees to consider, which can increase the overall cost of the loan. If the sale of your existing property takes longer than anticipated, the costs of the loan can spiral, leading to financial strain.

The risk of not being able to sell your property in time

One of the biggest risks associated with bridging finance is the possibility that you may not be able to sell your existing property in time to repay the loan. If this happens, you could find yourself facing penalties or, in the worst-case scenario, being forced to sell your property at a lower price to repay the loan. This is why bridging loans are considered high risk, and they are not recommended for everyone.

Bridging finance is often better suited for property developers and investors, who are more accustomed to dealing with short-term loans and have the financial resources to manage the risks involved. 

These individuals typically use bridging finance to secure properties quickly, renovate them, and then sell them on for a profit. In such cases, the short-term nature of the loan aligns well with their investment strategy. Developers are often more comfortable with the higher interest rates, as they expect to recoup the costs when they sell the property at a higher value.

For regular homebuyers, bridging finance should be approached with caution. Unless you are confident that your property will sell quickly and for the price you expect, the risks may outweigh the benefits. 

According to research by UK Finance, the average property in a chain takes 16 weeks to sell, which can be longer than anticipated when taking out a bridging loan. This makes it critical to carefully assess your ability to repay the loan before committing to this type of finance.

In conclusion, bridging finance can be a useful tool when trying to move home, particularly in a competitive market where property chains can cause delays. However, the high costs and risks associated with these loans mean they are not suitable for everyone. Bridging finance is generally better suited for experienced property developers and investors who have a clear exit strategy and are comfortable with the financial risks involved. For most homeowners, it’s worth exploring other options before committing to a bridging loan.

In recent years, the topic of mis-sold car finance has gained considerable attention, especially in the UK, where personal contract purchase (PCP) finance is one of the most common methods of purchasing cars. 

Many consumers have raised concerns about being misled during the finance process, particularly around how interest rates and commissions were presented to them. 

However, a key question for many is whether it’s worth going through the lengthy process of claiming compensation for mis-sold car finance, especially when the amount they might recover could be as little as £300 or £500.

PCP finance is hugely popular in the UK, with around 80% of new car purchases being made using this type of finance deal. PCP agreements allow drivers to pay a lower monthly amount compared to traditional loans, with the option to buy the car at the end of the contract or hand it back. 

However, the transparency of these deals has been called into question. One of the main issues has been the lack of clarity regarding the commission paid to dealers by lenders. In some cases, car dealers were incentivised to secure higher interest rates, increasing the cost to the consumer without properly disclosing this information.

For consumers who believe they were mis-sold a PCP deal, reclaiming compensation is possible, but the process can be long and frustrating. In many cases, it involves gathering documentation, filing a complaint, and waiting months for an outcome. So, is it worth it? The answer depends on a few factors, such as the amount of money involved, the consumer’s personal financial situation, and their willingness to engage in a potentially drawn-out process.

If the amount of compensation being claimed is relatively small, say £300 or £500, some might question whether it’s worth the effort. 

Filing a claim can involve gathering all the necessary paperwork, including finance agreements, statements, and any correspondence with the dealer. This can be time-consuming and requires attention to detail. On top of that, once the claim is submitted, it may take months—sometimes even longer—before a resolution is reached. During this time, the consumer must remain patient, with no guarantee of a successful outcome.

While £300 or £500 might not seem like a large amount, it’s important to remember that this money was wrongfully taken in the first place, due to the mis-selling practices, explains Claim Smart. 

For some people, getting this amount back could make a real difference, especially if they are already dealing with tight budgets or financial stress. Moreover, if successful, reclaiming this money is not just about the amount; it’s also about holding the industry accountable for its actions and ensuring that these kinds of mis-sold finance deals don’t continue in the future.

On the other hand, for consumers who can afford to absorb the extra costs and who do not want to deal with the hassle of lengthy paperwork and months of waiting, the potential reward may not seem worth it. In some cases, consumers have reported that the compensation they received was less than expected, which can add to the frustration.

There are services available, including claims management companies, that can assist in filing a claim, though they often charge a fee or take a percentage of any compensation won. These services can help reduce the effort required by the consumer, but they also reduce the final amount of compensation. 

Consumer champion Claims Bible explains that you may have more success claiming with the financial provider, rather than the dealership or car maker such as VW. 

The success rate for car finance claims against providers such as MoneyBarn and MotoNovo are far higher than going through the car manufacturer directly. Whilst a claims management company might take a cut of 10% or 20%, they can certainly make your application far stronger and more likely to be approved and compensated, since their commission relies on it and they are more ‘in the know.’

Ultimately, whether it is worth trying to claim back on mis-sold car finance depends on individual circumstances. For some, it could be a chance to recoup costs and correct a wrong, while for others, the lengthy process and relatively small amounts involved might not justify the effort. However, for consumers who feel strongly about the principle of the issue, even a small amount of compensation may make the time and effort worthwhile, especially if it also leads to improved practices in the car finance industry going forward.