The predicted slump in the housing market after the first reduction of the stamp duty holiday has still failed to materialise as the property market continues to boom. The Guardian recently reported that the average listing price of homes in England, Wales and Scotland stands at £338,447 as of June 2021. This is an increase of £21,389 (6.7%) since January 2021.
We are also seeing a big increase in bridging loan enquiries, as many investors are still looking for their next property. The concept of a bridging loan is relatively simple and a useful way of borrowing money for a short period of time. In essence, this form of finance is designed to “bridge the gap” where you wish to purchase a new home before selling your current one. These types of loan are commonly used when buying a property at auction where you need access to the purchase capital immediately and may not have sold your existing home.
It is important to know there are 2 core types of bridging loan: “Closed” and “Open”
Closed Bridging Loans: A closed bridging loan offers finance when there is a fixed repayment date. This is most commonly used when you have exchanged contracts at but are still waiting for the property sale to complete.
Open Bridging Loans: An open bridging loan offers no fixed repayment date but there is normally an expectation that such a loan will be cleared within a year. These types of bridging loan can be more challenging with lenders wanting to see clear plans on how the money will be repaid (e.g., property sale). This is certainly an area where assistance from a trusted advisor is invaluable.
In regard to the mechanism used in such a loan the lender will take a “first or second charge” on your property. This legal agreement prioritises which lender will be repaid as a priority in the event you fail to make a repayment. These agreements use your property as security should issues arise.
If you still have a mortgage on your property, the lender will usually seek a “second charge bridging loan”. This means that if you fail to meet repayments and you have to sell your home to cover debts, your mortgage would be paid off first.
However, if you own your property outright, or the bridging loan will repay your mortgage in full, you are more than likely to need a first charge bridging loan. This means if you fall behind with payments, it is the bridging loan that will be repaid first.
Bridging loans by their very nature are individual and will be negotiated on a case-by-case basis. They are priced monthly as they tend to be short term forms of finance and as such can be more expensive. Therefore, it is important to select a trusted mortgage advisor who has access to the whole market and has experience in using bridging finance loans.
There is a stricter criterion for most bridging loans which applicants will need to meet, and the process can take a little longer. Parkway Financial Solutions, based in Bournemouth, are a team of experienced mortgage and finance advisors who have access to the whole mortgage market. Our team are able to discuss the need and criteria for you bridging loan and are happy to discuss any of your mortgage needs, no matter how complex. Call our team today on 0333 443 5869