How to use a bridging loan to buy a house before selling your current home
In an ideal world, when we move house we would sell our old home first, then use the money to fund the purchase of the new property.
However, this is not always possible, meaning many home buyers have to use an alternative source of funding to buy their new home before selling their old one.
- Bridging loans are a popular solution in this situation as they offer a fast, flexible way to raise enough money for a house purchase.
- A bridging loan can allow you to quickly complete the purchase of a new home, then give you the time to sell your old.
In this article, we explain what you need to know about using a bridging loan to buy a house before selling your current home.
How bridging loans work
A bridging loan is a type of short term finance normally offered over 12 months or less, although longer loan terms may be possible depending on the circumstances.
Bridging finance can often be arranged in a short period of time, making it perfect for when you have found the ideal home and want to move fast to avoid losing out.
You will usually have to pay an arrangement fee for taking out a bridging loan and may have to pay an exit fee when the loan is repaid (depending on the lender).
Interest is normally charged monthly, although you may have the option to roll up the interest and pay it all in one go along with the capital when the loan term ends. Alternatively, you may be able to borrow extra to cover the interest with this added to the total capital you repay at the end.
Repaying a bridging loan
When you take out this type of short term finance, you will usually have to specify exactly how it will be repaid.
If you are using the bridging finance to buy a new home before your old one has sold, this is normally relatively straightforward. You will generally either be repaying with the proceeds of selling your old home, or by taking out a mortgage once your old mortgage is paid off.
Rates from: Downsizing/Upsizing Releasing Funds From Your Home Short Term Lease Finance Auction Purchase As at September 2020 Rates from: Ground Up Development Light & Heavy Refurb Finance For Unmortgageable Properties Land Purchase As at September 2020 Rates from: Up to 80% LTV Minimum Loan £500k Minimum Income £100k Serviced monthly interest required As at September 2020
Buying Before Selling?
Development & Refurb
Large Bridging Loans
Releasing Funds From Your Home
Short Term Lease Finance
As at September 2020
Ground Up Development
Light & Heavy Refurb
Finance For Unmortgageable Properties
As at September 2020
Up to 80% LTV
Minimum Loan £500k
Minimum Income £100k
Serviced monthly interest required
As at September 2020
How to get bridging finance
Bridging finance can be accessed through a specialist finance broker. A good broker will have access to a wide range of lenders and will do the hard work of scouring the market for you to find the most attractive interest rates and fees.
Common reasons for using a bridging loan to buy a house
There are various reasons why people use bridging finance when buying a new home. It may be worth considering if you are thinking about any of the following:
Downsizing your property can be a great way to reduce or get rid of your mortgage, cut your bills and find a home more suited to your changing needs.
A bridging loan can allow you to buy your new smaller home before you need to move. This gives you plenty of time to sort through all your possessions and say goodbye to your old home, resulting in a more even paced, less stressful move.
Buying a retirement home
Buying a retirement home often comes with the same issues as downsizing, but there may also be the added issue of needing to adapt the new property to your changing needs. Bridging finance can allow you to buy a new home, then make any necessary changes before you need to move in.
Buying a house at auction
If you are planning on buying a new house at auction, a bridging loan is likely to be essential (unless you have the cash spare to buy the auction property outright). This is because you usually only have 28 days (20 working days) to complete an auction purchase or you lose the property and your deposit.
This is not generally enough time to arrange a mortgage, so bridging finance is normally used as it can be accessed much faster. You then have time to apply for a mortgage once the property is yours, allowing you to repay the bridging loan.
Renovating a property
Lenders will not generally give mortgages on renovation projects, especially if they do not have a functional kitchen or bathroom. This means if your intention is to buy a “fixer upper” as your next home, you will likely need to use a bridging loan to do it.
This can give you the money to purchase the property and do it up, meaning you won’t have to move in until it is finished. You can then sell your old home and use the proceeds or a new mortgage to pay off the bridging loan.
Find an affordable bridging loan to buy a house
Bridging finance is highly convenient, but it does tend to come with higher interest rates than other forms of borrowing, such as a mortgage. It is therefore vital to make sure you get the best deal you possibly can.
Our team of highly experienced finance brokers at Clifton Private Finance have access to private and high street lenders from right across the market. That means we can offer you the very best rates currently available, keeping the cost of your bridging finance to a minimum.