Bridging Loan? Any other options?

[MsEmmelinePankhurst]

Advice please!

We are selling our house (very desirable area!) and moving a little away away. Several reasons for this which I won't and can't go into here as they are very specific and outing!

We have found THE perfect house to buy, had offer accepted, survey done, paperwork almost complete etc etc. We need to move into this new house within the next 3 months - again, very specific and outing reasons.

We have had not one but two buyers pull out of purchasing our current house - the first one pulled out SEVEN WEEKS after we accepted their offer, and the second pulled out two weeks ago. We have had lots of viewings since but no more offers. Reasons for pulling out were spurious (basically, flakey buyers - no problems flagged with surveys etc).

We absolutely HAVE to move in the next 3 months, and we CANNOT lose the house we want to buy as it meets a very specific set of criteria that no other house currently for sale can meet in this location.

Our house will sell - as I said, desirable area, loads of interest, already had offers, bla bla bla - and if we have to drop the asking price a bit, we will. However, we need to finance the purchase of the new property in the meantime, as we now can't guarantee that we can tie up our sale and purchase time-wise. I've googled bridging loans and OMG the cost is astronomical! I've just seen monthly interest payments of over £3k on a £500k loan (which is what we would need). Plus we would still be paying our existing mortgage until we sold our house.

SO MNetters, any help/advice please - we need to borrow £500k for (presumably) 3-6 months, and will repay the full amount once our house sells. What are our options please? Do we just have to suck up the cost? Is there anything I haven't thought of?

Thank you in advance. I am so stressed by the whole process, I could have written an essay here about flaky lying buyers and lying estate agents but we would have been here all day ...

Your home you are selling is in a very desirable area

and yet We have had not one but two buyers pull out of purchasing our current house -

Perhaps you need to focus on your selling property? Something is up

I’m afraid nothing you can do

Short of a drastic cut and you accept only if can complete very quickly ie cash buyer

"We buy any house" type company?

Thanks but that wasn't what I asked

I have answered your question directly

^That was to @Whataninsight - I am not worried about our house selling, but I am worried that it won't sell quickly enough. I can't go into why buyers pulled out but in both cases it wasn't anything to do with the house if that makes sense.

@Whisper23 I did wonder about that. I've always assumed that they pay way below market price (we do have a minimum price we'd need to obtain in order to afford moving) - but I will have a bit of a google, thank you

Bridging loans are only take usually to tide over few days, like remortgaging other properties to finance and waiting for funds to come hrough etc, IMO
It will be a huge risk and very expensive in your case, you can try webuyanyhouse. Com but yes it will be way less than market value...
If you new house is empty, can you move to rent it, while waiting for your house to be sold?

@MsEmmelinePankhurst yeah they probably will pay well below market value but as you seem set on buying this new house it's worth considering all the options even just to rule them out. Suspect none of the options will be good from a financial point of view. We were in a similar situation a couple of years ago but luckily a family member lent us the money. Best of luck.

Why do you think £3k a month interest for a £500k bridging loan is expensive? Sounds rather cheap to me.

I agree, it doesn’t sound expensive at all, roughly what the cost of a normal mortgage would be, so I’m not sure why you’re surprised.

I also agree with PP (that you were needlessly rude and snippy with) you might think your property is highly desirable but if you’ve already had two buyers pull out and since had lots of viewings but no offers, it might not be as easy to sell as you think. It might be generally a good property / location, but it’s a tough market. Prepare that you’ll be paying this loan for at least 12 months and factor that in. I think you might need to slow things down otherwise you could be putting yourself in a very precarious financial position. There is no cheap way to do it, hence why the vast majority of people are in chains and have to sell their current property at the same time.

£3k per month works out to an annual simple interest rate of 7.2%. That is only about 2.5% higher than the average rate currently offered (according to Google) on a normal 5-year fix. So it is not that high. It is just expensive to own 2 houses at the same time, which is what you apparently need to do in order to get the new house.

I do not know your specific circumstances, but if the house you are buying really is your dream house and you are confident that your current house will end up selling within a few months and if you can afford to carry those additional payments for at least 12 months or so (this is to have a margin of safety on selling your current house in case your assessment is wrong), then it my well be worth paying that price to get it. You might think of it as being an additional cost you would have to bear in order to buy your dream house, an increase in the asking price if you will, and if you can afford it, then maybe you just decide that is what money is for.

If it would cost you £3k a month for the bridging loan say for 6 months, could you drop your house price by at least that much to get a quick sale? If the new house is the only one for you, then I think you need to concentrate on selling your current one at a cut price.

Otherwise it might just be that you have to let the new house go - or the sellers might be willing to wait?

I would cost up the bridging loan vs the price "webuyanyhouse" will give you. Don't forget to factor in visits to check on house (we had to go weekly), insurance and council tax.

It was VERY expensive, and VERY stressful moving before we exchanged on our old house.

How much cash can you lay your hands on to reduce the 500k as much as possible? We lived on credit cards until the sale went through.

In this case a bridging loan is the only option but they are notoriously expensive in real terms and not for the faint hearted. I know two people who were stung badly with the finances because they were both too optimistic with the timescales. Both had bridging loans for a year.

You would need to factor the costs in for a good period of time and I agree basing the costs on a minimum of 10 to 12 months. That should be the budget you allocate to the loan fees and mortgage.

You will end up putting yourself in a very stressful situation and the EA, even though working for you, will no doubt inform potential buyers that you are very motivated to sell. Any sniff from a potential buyer that you have a bridging loan and need a quick sale will encourage cheeky offers, even potential reduction in price just prior to exchange etc as they will view you as an almost distressed/have to sell position. You will inevitably put yourself in a weak situation as the financial burden mounts each month.

If you factor the costs in and are prepared to pay accordingly so be it. But you have to be brutally realistic at the outset. At the moment you’re not being realistic as you mention the loan for say 3 to 6 months. You’ve already experienced the brutality of the housing market with two buyers pulling out. You could well have another buyer pull out, or the chain below could collapse whereby you start at the beginning again, house prices could fall etc.

Ultimately I agree with the person upthread who basically said you have to view the loan cost as the add on price of the house you want to buy. So the house cost is now £500k plus the cost of the bridging loan = xxxx. Then you have to decide whether the cost of the house is worth it and can you afford it.

If it were me, if I needed a bridging loan at all and could get one for only 7.2% interest rate, then I absolutely would not minimise the amount borrowed by squeezing myself into use of credit cards, etc. as that would make me even more desperate to sell once I had exchanged on the purchase, and it credit card interest rates are way, way higher than 7.2%. Instead, I would borrow enough at that 7.2% rate so that I could definitely hold out for at least 12 months, which would then put me in a stronger, or at least less weak, negotiating position for my sale.

I would also agree with PPs who suggested that you consider dropping the asking price, ideally enough so that you could reasonably hope to get at least two offers at asking price, bringing you to "best and final" aka "sealed bid." Obviously that is more difficult to hope for in this market and with your having already put the house on the market at a higher price. But, maybe it would if you could get the estate agent to tell buyers that you had previously misjudged the market value and priced it too high, and that you were now pricing the house to sell quickly at asking price. Getting to "best and final", if achieved, can also increase your chances that the transaction actually goes through because (a) the chosen buyer knows there is someone else waiting if they drag their feet and (b) if they do flake out, you have another buyer waiting in the wings (although in that case probably the price would drop back down below whatever they offered).

@YankeeDad we paid about £100 in interest over 4 months. A loan would have been cheaper?!
Salary in, direct debits out, rest of money onto credit card. Spend (carefully) on credit card for rest of the month. Salaries in and start the cycle again.

Can you remortgage your current house and rent it out to finance new house?

We had one house mortgage free and bought another with a mortgage which could be paid off at anytime penalty free. When the first house sold we paid off the second house mortgage. Ended up with two houses for about three months. Made moving easier! Also had to borrow the deposit for various parents and paid them back as well when the house sold.

According to your other thread Op - your DH is adamant that this is not his “dream home” by any stretch of the imagination and he doesn’t want to move

@LionessesRules I do not know your specific circumstances. If you had a very low "teaser" rate on the credit card and managed to sell the house and repay the debts before the rate "popped", or if you only needed the credit card balance outstanding for 1 month or something and were helped by the interest-free period, or if you were better able to squeeze down your expenses by doing it in this way, then you could very well have made the best decision for yourself. If on top of that you were selling an attractive house into a "hot" market, then you were taking less risk of a delayed sale. In any case, it sounds as though it was the right decision for you and I am glad it worked out well for you.

I was not giving any specific advice to the OP, but just trying to give an anecdote of what I would do if it were me. In the current market, I would choose conservatively to assume that it might take up to 12 months to get my house sold, and even if I were hoping to do it faster, I would rather pay a higher interest charge if I could afford it, than put myself in a position where I needed to sell my house in less than 12 months and was thus more vulnerable to last-moment price-reduction demands from whichever buyer to whom I agreed to sell.

But, that is what I would do for myself, given my own risk tolerance. I can only offer this as a personal anecdote; OP will need to decide what is best for her own circumstances and risk tolerance.

Sounds great but obviously most people in this situation don’t have a mortgage-free house to hand.

I would also look at the cost of a year of this loan and see what the gap between the price you think is market price and the price you’d get from a property purchase company might be. We have just completed on a sequential house sale and purchase, and our sale took ten months from going on the market to completion, and the house we’ve just bought will be a similar period of time from when our sellers started marketing. Both chain-free. So 3-6 months feels optimistic if you’re using it as a budget guideline.

OP we're in a very similar position for different reasons.

With a bridging loan you have a year to pay it off though, so while the interest is high, you're not having to shell out on a monthly basis.

The risk is that if you don't sell the property and pay it off in a year, you have to take another one out again with all the associated costs.

Forgot to mention, we used Sam Baker at Clifton Private Finance: 01173 137 662.