While bridging loans can be an effective solution for some borrowers, they aren’t the only option available. In fact, there are several alternatives to bridging loans that borrowers may want to consider before committing to a bridging loan. To give you an idea of some of your options, below are the pros and cons of each of the alternatives.
1. Remortgaging
Remortgaging is a popular alternative to bridging loans, particularly for those who already have a mortgage on their existing property. Remortgaging involves taking out a new mortgage with a new lender or your existing lender, with the aim of raising funds for a new property purchase. This can be a cost-effective solution because remortgaging rates are typically lower than bridging loan rates.
Pros:
- Lower interest rates compared to bridging loans
- Longer loan terms than bridging loans, (usually up to 25 years)
- No need for a clear exit strategy
Cons:
- Remortgaging can take longer to arrange than a bridging loan
- It may require a valuation and legal fees
- It may not be available to those with a poor credit history or low income
2. Second Charge Mortgage
A second-charge mortgage is a type of secured loan that allows you to borrow against the equity in your property in addition to your primary mortgage. This can be a good option for those who are unable or unwilling to remortgage because second-charge mortgages typically offer lower interest rates than unsecured loans.
Pros:
- Lower interest rates compared to bridging loans
- Longer loan terms than bridging loans
- No need for a clear exit strategy
- Great alternative if you have high equity in your property
Cons:
- As it’s a secured loan, it may require a valuation of your property
- It may not be available to those with a poor credit history or low income
- In some cases, it may have higher fees than remortgaging
3. Unsecured Personal Loan
An unsecured personal loan is a type of loan that’s not secured against any collateral such as your property or assets. Instead, they come in the form of a personal loan, credit card or bank overdraft. Using this type of loan can be a good option for those who don’t want to risk losing their property if they are unable to repay the loan. However, unsecured loans typically come with higher interest rates than secured loans.
Pros:
- No collateral required
- Can be arranged quickly
Cons:
- Higher interest rates compared to secured loans
- Typically lower loan amounts than secured loans
- It may not be available to those with a poor credit history or low income
4. Family Loan
A family loan is a loan provided by a family member or friend. This can be a good option for those who have a close relationship with a trusted family member or friend who is willing to lend them the funds. Family loans may have lower interest rates than traditional loans or they may even be interest-free.
Pros:
- Lower interest rates or interest-free
- More flexible repayment terms
Cons:
- May damage personal relationships if repayments are not made on time
- May not be available to those without a close relationship with a trusted family member or friend
5. Delaying The Purchase
If none of the above options is suitable, one option is to delay the purchase until you have saved up enough funds. While this may not be the ideal solution, it can be a cost-effective way to avoid taking on additional debt.
Pros:
- No additional debt
- Can provide time to save up funds for a larger deposit
Cons:
- It may mean delaying the purchase of a property that is in high demand, potentially losing out on the opportunity
- It may not be a viable option for those with an urgent need to move, such as a job relocation
Conclusion
Hopefully our five alternatives to bridging loans have given you some further options to explore. However, as with any financial decision, you must look at all of the options before committing and as specialist mortgage brokers, we have years of experience to provide you with the best possible advice. Whether you want to get a buy to let mortgage or consolidate debt, we can walk you through the entire process and help to find you the best deal available at the time.