Around 19% of homeowners said they have never heard of bridging loan before, and there is confusion about how they work, a report has found.
According to a report from Together, which surveyed around 2,001 homeowners, 13% did not know anything about how a bridging loan worked.
Approximately 19% believed they would be unable to repay a bridging loan sooner than a 12-month term, which is not the case, as early payments can mean paying less interest.
A third said they did not think they would be able to apply for a bridging loan as they were self-employed, retired or had a poor credit history.
This is not the case, as bridging lenders can consider sole traders, freelancers, those with a less-than-perfect credit history and those who are retired or looking to downsize, for instance.
Almost a third thought you could only borrow up to 50% of the property’s value in the form of a bridging loan, when in fact Together can lend up to 75% of the property’s value.
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However, the maximum loan-to-value (LTV) ratio can vary depending on property type.
Over half of homeowners thought there are monthly repayments on Together’s bridging loans – interest is charged monthly but it is rolled up to be repaid in a lump sum, with the initial loan and any fees and charges.
When the property sale goes through, the proceeds are used to pay off the bridging loan in full.
The report found that nearly a third of homeowners said they used a bridging loan or similar to avoid a lengthy and stressful property chain.
Within that, 29% said this was to make them chain-free, thus making them more attractive to sellers.
Some customers also thought bridging rates could be more expensive, but this is often not the case and is dependent on current circumstances and property plans in the short term.
Around 40% of respondents said having more education on types of finance available would be helpful, and a third said a better understanding of the potential costs of a broken property chain would enable them to better understand the benefits of a bridging loan.
Ryan Etchells, chief commercial officer at Together, said: “While the term ‘bridging loan’ may sound self-explanatory, our research makes clear that far too many buyers and sellers are still in the dark as to how this type of fast finance can help unshackle buyers from stressful and frustrating property chains.
“It is important to help debunk these myths so buyers and sellers are aware that there is a viable option to longer-term mortgages to help you secure your ideal home.”
Earlier this month, the firm confirmed it lent over £298m in October.