Bridging Loans

Where from? Banks, building societies.

How they work You borrow to bridge the gap between paying for your new home and getting the money from the sale of your old home. Loans may be 'open-ended' in which case you borrow for an unspecified length of time because you haven't yet exchanged contracts on your old home. More often, the loan will be 'closed' and will cover the fixed period from exchange of contracts to completion of the sale of the old home. Usually bridging loans aren't secured on either property.

Points to note There may be an arrangement fee of, say, one per cent of the amount borrowed or a flat amount such as £450. The rate of interest is variable and may be quite high. Sometimes you can arrange for the interest to be 'rolled up' and paid when you repay the loan itself. You can get tax relief on the interest on a bridging loan up to £60,000 even if you've used your normal £60,000 limit for mortgage interest relief. Tax relief is normally allowed for up to a year - longer in some cases.

Verdict A closed loan is useful if you really can't synchronise completion dates for both purchase and sale, but it may be expensive. In general, you should avoid open-ended loans - be wary of committing yourself to buying the new home if you haven't got a committed buyer for the old one.

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Personal Loans

Where from? Banks, building societies, finance houses.

How they work You borrow a set amount for a specified period anything from, say, one year up to five or seven years - and you are charged a rate of interest which is fixed at the time you take out the loan. You make regular repayments throughout the term of the loan. There's usually an upper limit on the amount you can borrow - for example, £10,000 or £14,500 with a bank, but more with finance houses and building societies. The latter may be unwilling to lend unless you are an existing customer. There will usually be charges... see: Personal Loans

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