How A Bridging Loan Can Help You Downsize Your Home In Retirement
At a certain age, you may need to downsize your house and move into a smaller, more practical home. Practicality remains the primary motivation, but over the past decade, there has been a huge trend toward seniors buying purpose-built retirement homes, packaged with many extra lifestyle and social benefits to make life more enjoyable and easier in later life.
This type of retirement property is highly sought after, so you may need to have your finances in place and be able to move very quickly in order to snap it up when you find the perfect one.
And this is when the use of a short term bridging loan can be very beneficial to help you manage the speed with which you may have to put in an offer, ensuring you secure your retirement home.
Here's our helpful guide to how bridging finance could help you downsize into the perfect retirement home:
Why you might want to downsize your home?
Downsizing often happens in stages. It’s a common scenario for seniors to downsize in early retirement (perhaps from a 4 - 5 bedroom house to a 2-3 bedroom house). And then, later on, might come the need to downsize further, often to a much smaller 1 person retirement apartment or flat, or sheltered accommodation - often after the loss of a partner or the need for an easier living space tailored to needs.
Sought after purpose-built retirement properties
Over the past 10-15 years, purpose-built over 55 retirement accommodation has been popping up all over the country to meet the demand for a new type of retirement lifestyle. Seniors are seeking retirement homes located within a purpose-built retirement village or community. It's no longer just a practical decision.
Purpose-built retirement properties, also known as ‘Later Living’ properties, have obvious appeal:
- You can remain as independent as possible but also have the luxury and benefits of having cafes to meet with fellow residents and visitors, accessible leisure facilities, regular social events on the doorstep, and communal gardens to enjoy.
- And while you can preserve your independence, crucially, these houses also have access to on-site support which can be tailored to your personal needs (and usually a 24/7 careline system for safety and security). Everything makes life much easier and more enjoyable.
Importantly, this can be the most reassuring scenario for seniors and their adult children, who may not be able to be around all the time to keep an eye on a loved parent.
With all the extra perks on offer, these retirement properties are attracting much interest, but how can pensioners finance the purchase of such a desirable retirement property?
While you're here, check out our full guide to bridging loans.
It’s common to start looking into retirement living properties before you sell your current house. And if you’re not able to purchase a new home outright, or you don’t want to dip into savings that you’ve locked away for the future, this could make things difficult.
Demand and competition for retirement living properties are exceptionally high. Many (new builds) are even being sold off-plan, whilst there can be fierce competition for existing properties, especially those in the more desirable areas of the city, or higher-end purpose-built retirement apartments in the suburbs. And you can easily find yourself in a situation where you lose out because another interested party is able to complete it before you.
Why a bridging loan could be a fast solution to downsizing from your family home into a new retirement home
If you need an injection of cash to secure the purchase of a retirement property you’ve fallen in love with, a bridge loan (or bridging loan) could be the perfect solution.
Bridge finance, by nature, is fast and short term borrowing, usually over a period of up to 12 months. You can think of it as a temporary loan that you pay back, either after you sell your current house or, thanks to recent developments in the mortgage market such as retirement interest-only mortgages, you can exit the bridging loan through a traditional mortgage route.
You can draw many advantages from the use of a bridging loan to secure the purchase of your retirement home:
# 1. A bridge loan can give you instant cash buyer status
A bridging loan can put you in a strong position to make an offer on a property and beat the competition. It effectively gives you cash buyer status, so both vendors and estate agents will take you more seriously.
Because you can have a bridge loan offer in principle within 24 hours of applying for one, this puts you in a position to move very quickly when you find the property you really want.
# 2. The ability to move quickly if you need to
With competition as high as it is when a much-desired retirement property comes on the market, a bridging loan can enable you to move quickly. You can offer the asking price from the get-go, and this often means the difference between securing a home you’ve fallen in love with or losing out.
This also puts you in the position of being able to ask the vendor to accept and take the property off the market straight away, giving you the security that no further offers will be received on the property and the vendor the further peace of mind that you can complete quickly on the transaction.
It’s also worth highlighting, that if the need to move into a smaller or assisted living property arises suddenly, for example, after an illness or injury, a bridge loan makes this possible. Your current house can be sold when the more urgent situation is taken care of.
Watch our video case study demonstrating the use of a bridge loan to buy a new property before you sell your current house
# 3. Breathing space to sell your current house at the best possible price
A bridging loan can take the pressure off having to sell your current house quickly. You’ll have plenty of breathing space to make any necessary alterations or redecorate it to realise its true market value. You won’t have to accept the first offer that’s made!
You can then potentially offset the cost of the bridge loan through the increase in value you achieve through simply having more time to sell.
# 4. No chain and less stress in moving
Moving house can cause a lot of anxiety and stress, particularly in the later years of life. Without the pressure of being in a chain, the need to meet tight deadlines on completion, or move out by a certain date, the process of uplifting from a home you’ve lived in for years could be a lot easier. You’ll have time to declutter, downsize your belongings and move on a date that suits you.
"Its also worth noting that some properties become even more saleable when they are empty rather than furnished, so you could benefit from an increased sale price of your current property."
Is it possible to get a bridge loan when I'm over 55?
Unlike a traditional mortgage, a bridging loan lender will not look at your earnings when they consider your application. If you’re a pensioner, you have the same chance of being approved for bridging finance as someone in their 40s on a high salary.
You can be at an advantage if you own your home outright because you’ll have more equity in your home, which means you'll be able to repay the loan quickly when you do finally sell your own house.
And even if you have a mortgage on your current property, as long as an exit strategy is in place (the means by which you will repay the loan), whether that's from the sale of your current home or after cashing in other savings or investments later on, you can still borrow.
It's always worth talking to one of our specialist bridging loan brokers if you're not sure whether you're eligible or are worried about your affordability.
How much does a bridging loan cost?
A bridge loan is less expensive than you might think, especially when you use one for the right purpose and weigh up the fees in light of the benefits it can extend. The overall cost of your bridge loan will depend on how much you need to borrow and for how long.
An arrangement fee:
This will be charged by the lender and is usually a percentage of the loan (2% of the value of the loan being typical).
A monthly interest rate charge:
Bridging loans are secured against your existing property, so interest rates are lower than personal loans and you can usually borrow a lot more.
Starting from around 0.5%, bridging finance interest is charged monthly rather than annually. This isn’t to disguise the rate - it's because bridge finance is a short term loan by nature and you're likely to have it for less than a year.
A broker's fee:
You will need a specialist bridging loan broker to help you access the funds, We typically charge a flat fee of £995 for setting up the finance on your behalf, but this can vary.
A great advantage of bridging finance is that you can pay it back at any time and you'll only pay interest up to the day you repay.
A Helpful Tip
You can consider adding some or all of the cost of the bridge loan to the minimum price you will accept for your current property since you will have the breathing space to be more confident with the potential offers you'll receive.
Our specialist brokers guide you through every step of the process. This is our area of expertise, with access to the widest range of funding options, market-leading rates and exclusive deals.
Why choose Clifton Private Finance?
Our team of bridging loan advisors are dedicated to finding a finance solution for people in your situation.
- Our specialist brokers are professional, highly experienced and have strong established relationships with the most competitive lenders.
- They will listen to your needs, advise you if we can help, and fully explain the bridging loan process, the fees, and all your different options
- They will never advise you to borrow more than you can afford
- They will work with your children or trusted loved ones where needed, giving peace of mind through each step of the process to your whole family.
The first step is a no-obligation conversation with a member of our specialist bridging team
They will gather all the information they need from you, explain everything up front, and create a bespoke lending solution based on your circumstances.