How A Bridging Loan Can Help You Downsize Your Home In Retirement
How A Bridging Loan Can Help You Downsize Your Home In Retirement
Find out how a bridging loan can help you to downsize. Get in touch now and get the best deal with ABC Finance.
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
If you’re thinking of downsizing your home either as you approach, or after retirement, a bridging loan could help.
In an ideal world, you would line up the sale of your current home with the purchase of a new one, but life doesn’t always work out that way.
If you’ve found your ideal property and can’t wait for your existing property to sell, then this guide will be an invaluable resource on the options available to you. We’ll cover how to manage the situation with bridging finance, how it all works, the alternatives and how to make sure you’re getting the best possible deal.
What is a bridging loan?
A bridging loan is a short term loan that is secured against your property, or multiple properties. In the case of downsizing in retirement, your bridging loan would usually be secured against both your current property and the one you plan to purchase.
When describing bridging as a short term loan, it’s more precise to say that bridging loans against your own home are called regulated bridging loans. This refers to the fact that they are regulated by the Financial Conduct Authority (FCA), which gives you greater consumer protection than is offered by unregulated bridging loans.
How can I use bridging finance to help me downsize?
If you’re looking to purchase a new property before selling your existing one, a bridging loan can be taken out against one or both properties. This will release the funds needed to complete your new purchase.
Once purchased, you are able to move into the new house, and while looking to sell your existing one.
Bridging loan interest rates are expressed monthly and can usually be added to the loan, which means there are no monthly payments to make. When you sell your old home, the loan is repaid and the charge is removed from your property.
Are there any warning signs to look out for?
These loans, when secured against your own home should always be regulated. If a lender or broker encourages you to say that the property will be an investment property, or that you won’t live in it when you will, you should not proceed.
This is an attempt to make the loan unregulated by manipulating the reason for the loan. This will reduce your consumer protection and could cause problems further down the line should you run into any problems in repaying the loan.
How do I get the best deal?
To get the best deal, you should use a reputable fee-free broker. While we may be a reputable fee-free bridging loan broker, this isn’t just a case of bias from us.
The reason for the advice is that we can offer a unique view of the market, help you to find the best deal quickly and offer support throughout the application process. A good broker works for you, not the lender, so can be a vital ally in working through the process and securing the best possible outcome.
What are the alternatives?
If you’re unsure about taking out a bridging loan there are some alternatives. They are:
- Equity release: Equity release allows you to borrow money against your property and roll up interest, much like a bridging loan. The key difference is the fact that equity release is a long term loan and can come with very high early repayment charges should you choose to pay it off.
- A Mortgage: A mortgage could be used to fund the purchase, although you would need to meet the lenders criteria around income and maximum age, which could prove tricky if you’re retired.
- Wait for your property to sell: Waiting for your property to sell is obviously ideal as it will mean you don’t have to pay any interest or charges. That said, it isn’t always possible, especially if you need to move quickly to secure the perfect property.
Will I qualify?
Most pensioners can qualify for a bridging loan to downsize, as there tends to be sufficient equity in the properties to support the loan.
As the exit strategy tends to be the sale of the security property, little consideration is given to an applicant’s income, so even those on pension income alone can qualify.
That said, we always do thorough checks to ensure that the exit strategy is sensible and the loan can be repaid in full without issue. While we may go further than the average lender would, we do this from a position of looking to protect our clients rather than to exclude people from borrowing.
Read more – Bridging Loan To Buy A New Home Before Selling.
How much can I borrow?
We offer bridging loans for pensioners from £10,000, with no maximum loan size.
For more valuable properties, we even offer a range of large bridging loans with enhanced terms for loans over £1,000,000.
We also offer specialist bridging loans for care home fees.
How do I repay the loan?
As mentioned above, in this situation, the loan is usually repaid through the sale of your existing property.
If there is a shortfall, then equity release, or a small mortgage may be required, although this is rare.
