Bridging loans are a handy way to access short-term funding for time-sensitive needs — for example, buying a property before selling an existing one.
However, if you’re considering applying for a mortgage alongside or after securing a bridging loan, you may be wondering whether a bridging loan affects mortgage applications.
The short answer is yes, but with careful planning, any potential negative impact is easily manageable.
What Impact Does A Bridging Loan Have On Mortgages?
A bridging loan could impact your mortgage applications as lenders will look at your overall financial health and repayment strategy when making the final decision.
Here are a few key factors that could lead to challenges when applying for a mortgage with a bridging loan:
Increased Debt-to-income Ratio
Lenders assess your ability to repay a mortgage by reviewing your debt-to-income ratio. An active bridging loan could increase this ratio, potentially affecting your eligibility for a mortgage.
Perceived Risk By Lenders
Mortgage providers might see a bridging loan as a sign of financial instability or over-borrowing, especially if your exit strategy is unclear or faces delays.
Uncertain Repayment Strategy
If your bridging loan isn’t repaid before you apply for a mortgage, lenders may consider this a risk factor and reject your application.
Can A Bridging Loan Affect My Credit Score?
A bridging loan can affect your credit score, but this depends on how you manage your loan.
For example, making repayments on time can help maintain your credit score and show responsible financial behaviour. Missed payments, on the other hand, can negatively impact your credit score, making it harder to secure a mortgage.
At Pyxis Capital, we help you with a clear repayment strategy to avoid negative impacts on your credit score. With proper planning and execution, we can ensure your bridging loan supports your financial goals without setbacks.
Will A Bridging Loan Show On A Credit Report?
Yes, bridging loans will appear on your credit report. Mortgage lenders will use this information to assess your overall financial obligations, which can influence their decision to approve or decline your mortgage application.
A bridging loan on your credit report will be factored into affordability assessments. If your income isn’t sufficient to cover the bridging loan and a new mortgage, this could lead to rejection.
It’s also worth noting that mortgage lenders could see a bridging loan as a short-term liability, but if it’s close to being repaid or in line with your financial plan, it is less likely to be seen as a negative factor.
To minimise these issues, always make sure you have a clear exit plan for repaying your bridging loan before applying for a mortgage.
How To Make Sure Your Bridging Loan Doesn’t Affect Your Mortgage Or Credit Score
There are a few proactive steps you can take to lessen the negative effects of a bridging loan on your mortgage application or credit score.
1. Plan your exit strategy
A solid exit strategy is one of the most important things to plan when taking out a bridging loan. Whether you repay your loan through the sale of a property or by refinancing, having a clear plan reassures both bridging loan and mortgage lenders.
2. Avoid over-borrowing
Try to borrow only what you need to ensure you can confidently repay within the loan term. Overborrowing can increase your debt-to-income ratio and pose a higher risk to mortgage lenders.
3. Make your repayments on time
Always make your bridging loan repayments on time to protect your credit score. Even a single missed payment can have a lasting impact.
4. Work with a trusted broker
Collaborate with an experienced bridging loan provider. This will make sure your loan is well-structured, minimising any negative effects on your future borrowing plans.
5. Communicate with lenders
Let your mortgage lender know about your bridging loan and demonstrate how it fits into your financial plan.
Transparency is always the best approach if you want to get a mortgage with a bridging loan, as this can alleviate any concerns on both sides and strengthen your application.
Secure A Bridging Loan Without Complications Today
Our brokers specialise in bridging finance solutions that work with your broader financial goals. From day one, we prioritise understanding your unique needs, ensuring your bridging loan is structured with a robust exit strategy that won’t disrupt your mortgage plans.
Trust in our team to provide the expertise needed to secure the funding you require.
Contact Pyxis Capital today for a no-obligation quote on the best possible solution.