Bridging loans, like any mortgage or loan secured against a property has risks. The main risk being that if the borrower does not pay back the loan to the lender by the maturity date then they will be in default of the loan. To start with a lender may apply default rates on top of the standard monthly rate. This increase can quickly erode the borrowers equity in the house. Most lenders do not want to repossess a property but if they feel a client is not taking the situation seriously enough and not doing anything to rectify the situation and not servicing the monthly interest then they will at some point reach the conclusion that their only option is to enforce their loan and repossess the property & liquidate the asset themselves. Any money raised over and above the outstanding debt will then be repaid back to the borrower.
Another potential pitfall for borrowers is if they have not complied with the loan conditions. If a borrower applies for a loan for a particular reason e.g modernising the property being used as security but instead spends all the money on something totally unrelated then a lender will have the right to call in the loan and give the borrower a fixed period to repay the loan early. As mentioned above, if for whatever reason the borrower is not able to repay the debt then a lender may need to repossess the property. This would also apply if the borrower had chosen to service the monthly interest on the loan but had stopped making these payments. The borrower would then be in default.
It is essential that a borrower contacts us or the lender immediately if they feel their situation is changing and they need help.