How to buy a house before selling your old one
Sometimes people find themselves in a situation where they need to complete the purchase on a new property before they can sell their existing one. If your capital is tied up in your house but you can’t sell it in time, does that mean you will miss the chance to buy the home of your dreams?
“Not necessarily,” says Steve Opie, an independent financial adviser who specialises in property. “Depending on your circumstances, you may be able to get what’s known as a bridging loan. This is a type of loan designed to help people complete the purchase of a property by offering them short term access to money. They are normally very quick to sort out so can be a good solution if speed is of the essence.
“However you do need a robust plan for paying it off before the term of the agreement expires which is usually 12 to 18 months. In most cases bridging loans are paid back when you sell your existing property. You should also be aware that interest rates on bridging loans are higher than on normal mortgages. Interest is usually added to the loan on a monthly basis over a set term of 12 to 18 months. There is no penalty for repaying early so it is in your interest to pay back the loan as soon as you can – you will only pay interest for the months you held the loan, not for the whole term.
“Before you commit to a bridging loan it is important to talk to an FCA registered broker who should explain the process in detail and find you the best solution to match your circumstances. They should make sure that you understand exactly what you are committing to and that you are aware of all the costs. These should all be laid out within the documentation issued by the lender and typically include broker fees, valuation fees, lender fees, and legal fees. The majority of the fees are added to the loan, so you would pay them when the main loan is repaid rather than upfront.”
Case study – How a bridging loan secured the perfect penthouse
Mr and Mrs F are retired and live in a large, mortgage-free house in Tunbridge Wells. They have been thinking about downsizing to Eastbourne to be near their daughter and grandchildren and on a whim went to see a fabulous apartment overlooking the sea. They instantly decided that this was exactly what they wanted, but penthouses rarely come on the market, so it was this one or nothing. Although the couple put their house straight on the market they were worried that it would take too long to sell and they would lose their dream flat to a rival bidder. Steve arranged a bridging loan which enabled them to buy the flat in a matter of a few weeks. They will pay it back when the sale of their Tunbridge Wells house completes.
Written by Steve Opie.
Independent Mortgage Specialist
Tel: 0800 195 1066
If you would like further information about financing property, including bridging loans, please contact Steve Opie at Spectrum Independent Financial Advice, Regent House, Mitre Way, Station Approach, Battle, East Sussex TN33 0BQ.