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How can a bridging loan help me buy before my current home is sold?

Upsizing

Most people use the proceeds from the sale of their current home to buy their next property. But what if you’ve found the home you want, but you don’t have a buyer yet?

Most people use the proceeds from the sale of their current home to buy their next property, whether they are:

  • “trading up” to a bigger family home or a better location
  • “downsizing” to a smaller property and planning to recoup some capital.

But what if you’ve found the home you want, but you don’t have a buyer yet?

  • You may not be actively house-hunting when you find your “dream home” on the market.
  • Most overseas property-buyers are on holiday when they see the vacation home, or the relocation property they want.
  • In a “hot” property market, the deadline for offers may be in within a day of viewing.
  • In a slow market, with fewer properties on offer, competition may still be brisk between committed purchasers who need to move.
  • If you’re downsizing you may have very specific requirements: a smaller, easy-maintenance property close to family. When a property becomes available that ticks all the boxes, you need to offer quickly

Problems with buying chains

Waiting for a sale to complete before purchasing depends on both parties being happy to move at the same pace.

In a property-buying chain that means moving at the speed of the slowest transaction in the chain – which might be another buyer who needs to sell a couple of properties before they can proceed.

And even the most promising buyer can drop out at the last minute, due to unforeseen circumstances.

Bridge finance can be arranged quickly, and effectively turns you into a cash buyer, breaking the “chain”

  • Estate agents favour the most “qualified” buyer, who is able to move fastest.
  • If the seller is in a hurry to complete you may be able to negotiate a substantial buyers’ discount
  • You won’t feel pressured to accept a low offer from a buyer for your property: you can hold out for the right price

How long does it take to sell a property?

  • Selling can be a long drawn-out process.
  • According to Rightmove, in November 2019 it took 9 weeks on average to secure a buyer. But that doesn’t tell the whole story.
  • Research by house-sellers’ advice service TheAdvisory in 2019 found it was taking 16 weeks for properties in the “hottest” areas of the UK to sell – from first day of marketing to legal completion.
  • For properties in the least-popular locations it was taking an average of 25 weeks: nearly six months.

The fast-finance alternative

  • The unique feature of bridge finance is that it can be set up quickly: you can have a Decision in Principle by the following day, to give to an estate agent.
  • Speed is possible because funding is secured against the value of a property, rather than being based on your income and affordability (as with a standard mortgage).
  • A property valuation can be arranged within days. Verifying your income and expenditure, and credit record, takes far longer.
  • You only pay for the lending as long as you need it: after the first month you pay interest on a daily rather than monthly basis, and there are usually no early repayment charges (ERCs).

A good broker speeds up the process

  • A good mortgage broker will determine your priorities: speed / cost of borrowing / securing lending against a “quirky” property / finding finance with a less-than-perfect credit record
  • They take your application straight to a lender who can meet your needs
  • You approve the terms, and agree your “exit strategy” (how the lending will be repaid: usually with the proceeds of a property sale, or with a standard mortgage)
  • Your broker submits the online application for you, and chases it up through the system

Funds can be in your bank from 5 days to 3 weeks later

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