Have you found a new property that you wish to purchase, but won’t be able to sell your current home simultaneously? In this scenario, a bridging loan may be the solution you need.
While you may have other assets as part of your existing investment plan, cashing in part of a portfolio or ISA could potentially hinder the growth of these investments. Instead, arranging a standard bridging loan on your current home could be the ideal solution.
How does affordability work for a bridging loan?
Standard affordability does not apply to bridging. A bridging loan, in this instance, is based on the security provided by your current home and the exit strategy. The exit in this scenario would be evidenced by the saleability of your current property, which would act as an aid to a quick completion. This would be the ideal solution if your wealth is made up of assets that are not drawn upon, where the growth is reinvested, which provides little to no income for tax returns and, therefore, would allow for a standard affordability calculation.
What is the main benefit of a bridging loan?
Arranging a quick facility enables you to purchase your new property while you wait to find a buyer for your current home. This will position you as the most advantageous buyer, as you will be able to proceed quickly without a chain.
What could terms look like?
We had a client, purchasing at £775,000.00 and selling at £3,200,000.00, who needed to complete as soon as possible. Detailed below are the terms offered, factoring in Stamp Duty and other associated costs:
- Net Loan: £815,034.96
- Completion Fee: 1.00% (£8,176.24)
- Administration Fee: £495.00
- Lender’s Legal Fees: £2,070.80
- CHAPS Fee: £23.00
- Gross Loan (Net Loan plus Fees Added): £825,800.00
- Interest Rate: 0.55% per month
- Interest Method: Rolled Interest
- Chargeable over Term: £56,340.66
- Term: 12 Months
- Gross Facility at the end of the Term: £882,140.66
- Exit Fee: £0.00
- Value of Property: £3,200,000.00
How does interest work with a bridging loan?
With a bridging loan, the interest is quoted over 12 months. However, you will only pay interest for the time the facility is in place. For example, if your current property sells and the bridge is redeemed within 2 months, you will only be liable for 2 months of interest.
What is the benefit of using a mortgage adviser for a bridging loan?
When taking out a bridging loan, expert guidance is essential, particularly if you require a quick solution. At Henry Dannell, we specialise in finding customised solutions to fit your objectives and requirements. With our in-depth market knowledge and access to whole-of-market lenders, we can support you in finding the most favourable rates and streamline the complex application process.
For more information on how an adviser can support you, read our blog ‘The Benefits of Using a Mortgage Adviser‘. Or to learn more about the solutions we have provided, take a look at our recent case study: https://henrydannell.co.uk/case-study/short-term-bridging-finance
Please note: a bridging loan is a short-term loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any debt secured on it. The Financial Conduct Authority does not regulate some forms of bridging finance. Bridging finance / loan deals may not be available and lending is subject to individual circumstances and status.
