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How to use a bridging loan to buy a house before selling your current home
In an ideal world, we'd all wait to sell our old house before buying a new home. But in reality, it's not always possible: the market may be slow, a buyer may have dropped out, or you might want to do renovations before moving in.
Short-term borrowing allows a financially-aware buyer to purchase the property they've set their heart on.
- Bridge finance offers a fast, flexible way to raise money for a house purchase.
- The ability to complete quickly often wins a price discount, which may cover the total cost of your bridge finance.
- Or it can rescue a buying chain that's threatening to collapse.
In this blog, we'll outline:
How Do I Pay Back My Bridging Loan?
4 Key Reasons for Using a Bridging Loan to Buy a House
And while you're here, don't forget to check out our full guide to bridging finance.
What is a Bridging Loan & How Can it Be Used to Buy a House Before Selling Your Current Home?
In the video below, our Head of Bridging, Sam O'Neill, covers the need-to-know information about bridging loans and how they 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 funding to cover the interest, with this added to the total capital you repay at the end.
How Do I Pay Back My Bridging Loan?
When you take out this type of short-term finance, you will agree on exactly how it will be repaid.
If you're using a bridging loan to buy a new home before your old one has sold, the process is normally relatively straightforward.
You typically have two options:
- Repay the bridging loan with the proceeds of selling your previous home
- Refinance to a new mortgage
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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.
The 4 Key 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
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 regulated 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 home for your retirement
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 and 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 an auction bridging loan 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.
Read our related blog: How to Get Fast Property Auction Finance
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.
What Can a Bridging Broker Do for You?
A bridging loan can be set up quickly. As a short-term solution, rates are higher than long-term mortgage borrowing, so you need to be sure you're getting the best deal available in the market on the terms that will suit your personal situation.
Bridging loan advice can help you feel confident that a bridging loan is right for you and that you're making a sensible decision.
Our team of highly experienced finance brokers at Clifton Private Finance have access to private and high street lenders from right across the market.
We can quickly tell you if you meet the bridging loan criteria and offer you the best rates available for your circumstances, keeping the cost of your bridging finance to a minimum.
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