Wary of buyer with bridging loan?

AnotherJoe

rickyroma said:

Got an offer on our house from someone with a bridging loan. Their property is for sale but not under offer yet. I admit I didn't even know what a bridging loan was until this week! 

 We are a bit under pressure to accept an offer in the next couple of weeks otherwise we lose the house we are hoping to buy. 

 Are we worrying too much about taking our house off the market for someone with a bridging loan? Our concern is that they will realise this type of finance is not the best way to go and pull out. 

Any thoughts? 

They literally have taken out a new loan because they want to buy your house so much, and you are "wary" of them?

Whut???

yeh, dump these committed buyers and wait for a flaky FTB or someone in a chain instead /s

Although you'll probably then fret that the chain will fall through or the FTB will have second thoughts.

 rickyroma said:

They made the offer but we made it clear we need to see some sort of proof their finances are in place before we accept the offer and take it off the market. The buyer said they need their offer accepting before they are able to finalise the bridging loan offer ( does this ring true?) . So we are stuck in this catch 22 position at the moment.
We have told our EA to pin the buyer down a bit more on their situation 

There is literally nothing committing you to selling to them by you accepting their offer.

As pinkteapot posted, all you need keep an eye out for is that they later in the process get a buyer and try to match the two to cut out the loan, but there are ways of managing that plus you'd be no worse off than a prospective buyer in a chain to start with, who you presumably wouldnt be having kittens about yet woudl be far likelier to drop out.

macman

Surely someone paying punishing interest rates on a bridging loan is a very good buyer? They have every incentive to move the sale through ASAP.
You don't need to see proof of finance before accepting their offer. you can accept now and withdraw any time you like up to the day of exchange.

davidmcn

The OP was from a month ago (resurrected by somebody else), I suspect things might have moved on.

neilogg

K_S said:

neilogg said:

Not having moved house in 40 years I was amazed to discover that the banks and building societies I deal with do not offer short term bridging loans at reasonable rates.

It is a clearly a major logistic advantage to be able to decouple the move to a new property from the clearance of an existing house. Any lender could have the security of the deeds on the existing house between exchange and completion when the loan would be paid off. The alternatives of synchronising both moves or renting/storage are not appealing.

There are apparently, large amounts of money around available at low interest rates. Why is this all so difficult and why don 't the banks/building societies offer this service?

@neilogg Depends on what you consider to be a "reasonable" rate taking into account the fact that it's an entirely different kettle of fish compared to mainstream residential mortgages. 

I arrange a good amount of bridging finance (both the regulated and unregulated kind) and can confidently say that it's a very competitive industry in the UK with a wide set of lenders servicing pretty much every scenario there is that requires short term property backed finance.

Are the rates and fees comparable to long term resi rates, definitely not. Are they competitive for what they are providing, (imho) definitely yes.

Depends on what you mean by a competitive market. In my circumstances I would require a short term bridging loan with security of much greater value than the loan. This carries zero risk. The standard of comparison for reasonability should therefore be other zero risk investments e.g. current bank interest rates. Obviously, overheads would have to be taken into account. But surely the legal work involved in arranging this is trivial and an APR of a few percent should provide adequate returns. Somehow I feel that the supposedly competitive market will not provide this.

K_S

neilogg said:

K_S said:

neilogg said:

Not having moved house in 40 years I was amazed to discover that the banks and building societies I deal with do not offer short term bridging loans at reasonable rates.

It is a clearly a major logistic advantage to be able to decouple the move to a new property from the clearance of an existing house. Any lender could have the security of the deeds on the existing house between exchange and completion when the loan would be paid off. The alternatives of synchronising both moves or renting/storage are not appealing.

There are apparently, large amounts of money around available at low interest rates. Why is this all so difficult and why don 't the banks/building societies offer this service?

@neilogg Depends on what you consider to be a "reasonable" rate taking into account the fact that it's an entirely different kettle of fish compared to mainstream residential mortgages. 

I arrange a good amount of bridging finance (both the regulated and unregulated kind) and can confidently say that it's a very competitive industry in the UK with a wide set of lenders servicing pretty much every scenario there is that requires short term property backed finance.

Are the rates and fees comparable to long term resi rates, definitely not. Are they competitive for what they are providing, (imho) definitely yes.

Depends on what you mean by a competitive market. In my circumstances I would require a short term bridging loan with security of much greater value than the loan. This carries zero risk. The standard of comparison for reasonability should therefore be other zero risk investments e.g. current bank interest rates. Obviously, overheads would have to be taken into account. But surely the legal work involved in arranging this is trivial and an APR of a few percent should provide adequate returns. Somehow I feel that the supposedly competitive market will not provide this.

@neilogg If bridging finance was indeed zero risk and provided adequate returns at interest rates of 1-2%, there'd be someone offering those rates. Why would all the lender money sloshing around pass up on such a can't-lose deal? 

Genuine question, out of interest, on a total cost basis (fees plus interest), what kind of rates would you consider reasonable for your requirements?

user1977

neilogg said:

K_S said:

neilogg said:

Not having moved house in 40 years I was amazed to discover that the banks and building societies I deal with do not offer short term bridging loans at reasonable rates.

It is a clearly a major logistic advantage to be able to decouple the move to a new property from the clearance of an existing house. Any lender could have the security of the deeds on the existing house between exchange and completion when the loan would be paid off. The alternatives of synchronising both moves or renting/storage are not appealing.

There are apparently, large amounts of money around available at low interest rates. Why is this all so difficult and why don 't the banks/building societies offer this service?

@neilogg Depends on what you consider to be a "reasonable" rate taking into account the fact that it's an entirely different kettle of fish compared to mainstream residential mortgages. 

I arrange a good amount of bridging finance (both the regulated and unregulated kind) and can confidently say that it's a very competitive industry in the UK with a wide set of lenders servicing pretty much every scenario there is that requires short term property backed finance.

Are the rates and fees comparable to long term resi rates, definitely not. Are they competitive for what they are providing, (imho) definitely yes.

Depends on what you mean by a competitive market. In my circumstances I would require a short term bridging loan with security of much greater value than the loan. This carries zero risk. The standard of comparison for reasonability should therefore be other zero risk investments e.g. current bank interest rates. Obviously, overheads would have to be taken into account. But surely the legal work involved in arranging this is trivial and an APR of a few percent should provide adequate returns. Somehow I feel that the supposedly competitive market will not provide this.

No lending is "zero risk" - even if the lender manages to sell for the sort of price anticipated by the valuation (and there are all sorts of reasons why that might not happen), it will have been a slow and expensive process to get there (during which time nobody is servicing the loan). The legal work involved in setting it up isn't going to be any more trivial than a standard mortgage, and in practice the lenders want it done quickly (but also with the knowledge that it's a higher risk sector than standard lending) so if anything it's going to be more expensive to set up than mainstream mortgages.

Thrugelmir

neilogg said:

K_S said:

neilogg said:

Not having moved house in 40 years I was amazed to discover that the banks and building societies I deal with do not offer short term bridging loans at reasonable rates.

It is a clearly a major logistic advantage to be able to decouple the move to a new property from the clearance of an existing house. Any lender could have the security of the deeds on the existing house between exchange and completion when the loan would be paid off. The alternatives of synchronising both moves or renting/storage are not appealing.

There are apparently, large amounts of money around available at low interest rates. Why is this all so difficult and why don 't the banks/building societies offer this service?

@neilogg Depends on what you consider to be a "reasonable" rate taking into account the fact that it's an entirely different kettle of fish compared to mainstream residential mortgages. 

I arrange a good amount of bridging finance (both the regulated and unregulated kind) and can confidently say that it's a very competitive industry in the UK with a wide set of lenders servicing pretty much every scenario there is that requires short term property backed finance.

Are the rates and fees comparable to long term resi rates, definitely not. Are they competitive for what they are providing, (imho) definitely yes.

 This carries zero risk. 

No, the borrower still has to sell their property to repay the debt. If the borrower loses their income to service the debt then the lender may have the additional expense of repossessing the property. Which never recoups the full costs involved. 

neilogg

K_S said:

neilogg said:

K_S said:

neilogg said:

Not having moved house in 40 years I was amazed to discover that the banks and building societies I deal with do not offer short term bridging loans at reasonable rates.

It is a clearly a major logistic advantage to be able to decouple the move to a new property from the clearance of an existing house. Any lender could have the security of the deeds on the existing house between exchange and completion when the loan would be paid off. The alternatives of synchronising both moves or renting/storage are not appealing.

There are apparently, large amounts of money around available at low interest rates. Why is this all so difficult and why don 't the banks/building societies offer this service?

@neilogg Depends on what you consider to be a "reasonable" rate taking into account the fact that it's an entirely different kettle of fish compared to mainstream residential mortgages. 

I arrange a good amount of bridging finance (both the regulated and unregulated kind) and can confidently say that it's a very competitive industry in the UK with a wide set of lenders servicing pretty much every scenario there is that requires short term property backed finance.

Are the rates and fees comparable to long term resi rates, definitely not. Are they competitive for what they are providing, (imho) definitely yes.

Depends on what you mean by a competitive market. In my circumstances I would require a short term bridging loan with security of much greater value than the loan. This carries zero risk. The standard of comparison for reasonability should therefore be other zero risk investments e.g. current bank interest rates. Obviously, overheads would have to be taken into account. But surely the legal work involved in arranging this is trivial and an APR of a few percent should provide adequate returns. Somehow I feel that the supposedly competitive market will not provide this.

@neilogg If bridging finance was indeed zero risk and provided adequate returns at interest rates of 1-2%, there'd be someone offering those rates. Why would all the lender money sloshing around pass up on such a can't-lose deal? 

Genuine question, out of interest, on a total cost basis (fees plus interest), what kind of rates would you consider reasonable for your requirements?

l don't think we're going to agree on this. I suppose depositing money in a bank is not zero risk but the risk is very small. A normal mortgage, because it extends over time, must carry greater risk than short term lending, if other things are equal. As for the risks of repossession, default etc. these are very small over the short timescale involved.

Taking a specific example close to my circumstances. I take a loan for £300K. The LTV (Loan to Value), ratio is about 35%. Arrangement fees are typically 2%, (£6K) with additional interest around 1% per month. If I have the loan for 2 months my total costs are £12K. The lender gets a return of £12K for a loan of 2 months, (an APR of around 24% compared to about 1% yield if the £300K were banked). Nice work if you can get it. My legal fees in buying/selling are around £3K. I do not believe arranging a loan is anything like as complex. I am afraid my view is that the supposedly competitive market in bridging loans is similar to that which determines banker's salaries.

It is clearly logistically desirable to move effects to a new property just before the sale of the existing property completes. It is a great pity that the financial sector cannot provide a viable and reasonable solution to this.

Mickey666

AnotherJoe said:

rickyroma said:

Got an offer on our house from someone with a bridging loan. Their property is for sale but not under offer yet. I admit I didn't even know what a bridging loan was until this week! 

 We are a bit under pressure to accept an offer in the next couple of weeks otherwise we lose the house we are hoping to buy. 

 Are we worrying too much about taking our house off the market for someone with a bridging loan? Our concern is that they will realise this type of finance is not the best way to go and pull out. 

Any thoughts? 

They literally have taken out a new loan because they want to buy your house so much, and you are "wary" of them?

Whut???

yeh, dump these committed buyers and wait for a flaky FTB or someone in a chain instead /s

Although you'll probably then fret that the chain will fall through or the FTB will have second thoughts.

That's my feeling too.  I can't see there is anything to be wary about, certainly no more that any other potential buyer depending on some form of finance.

Why?  First, because anyone, even a true cash buyer can pull out at any stage up to exchange so I don't see that a bridging loan changes that risk (and, as already pointed out, probably shows more commitment) and secondly because once they have completed their money is in your bank and it doesn't matter where it came from

GLWTS!