Bridging Loan to Buy Property Before Selling
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When you find the perfect new home but haven’t sold your current one, the vendor may be unwilling to consider an offer from you.
A property chain, or even no sale agreed, could mean that you miss out on the property.
To ensure this doesn’t happen, a bridging loan can be used to finance your new property acquisition, without the need to wait for your current home to sell.
Using a Bridging Loan to Buy Before You Sell
A bridging loan is a flexible, short-term finance product that allows you to complete your property purchase before your existing property is sold.
Bridging finance can be structured is several simple ways to enable the purchase to complete quickly and without hassle.
The key methods are:
Securing the bridging loan against your existing property
If there is sufficient equity in your existing property, securing the loan against only this property may be quick and easy. When the property is sold, the loan is repaid in full, with no further obligation to your lender.
This approach allows you to purchase your new property as a cash buyer, meaning you may be able to negotiate a better purchase price, offsetting the cost of the loan.
Securing your bridging finance against both your new and old property
Unlike a mortgage, bridging loans can be secured against more than one property. In this case, securing against both your new and old property. This approach will give you more equity to work with, will reduce your loan to value and may result in you paying lower bridging loan rates.
The downside of securing against both properties is that the legal process involves securing a charge over both properties, which adds a small amount of extra work. This is often well worthwhile if it allows you to get a better deal.
Securing against only the new property
Securing your loan against only the new property allows you to retain a low rate mortgage on your existing property (where you have one), allowing you to port the mortgage rate over to the new property on sale.
This approach is less common, but can be done in certain cases where it makes sense to do so.
The alternative is to port the mortgage over to the new property on purchase to make things simpler, and then take out the bridging finance on your existing property.
How Chain-Break Bridging Works
Chaim-break bridging works by allowing borrowers to use the equity in both the property that they are selling and the one they are purchasing to rescue a property chain that would otherwise collapse.
It works by releasing money to the borrower quickly, often in as little as 5 days to 3 weeks, enabling the chain to complete uninterrupted.
When the existing property is sold, the loan is repaid and the property owner is left with their new property, which they otherwise may have lost.
It’s a simple application process based on your equity and exit strategy (how you plan to repay the loan). In most cases, these loans are repaid through either the sale proceeds, or a combination of the sale proceeds and a mortgage on the new property.
Downsizing in Retirement with Bridging Finance
Bridging loans can also be used to downsize in retirement, often allowing retirees to move quickly on their ideal home before their existing one sells.
This is common for retirement properties, such as over 55s units, which in many areas rarely come onto the market and are snapped up very quickly when they do.
A bridging loan allows you to move quickly and secure the purchase. Looking to sell first rarely works in this scenario as it can be hard to know when a suitable property will hit the market, and once it does, there will be pressure to move quickly.
