Bridging loans when buyer withdraws

WatchedClock

Hi

My buyer looks like they're about to withdraw and I'd like to explore the option of using a bridging loan to continue my onward transaction, but I'm struggling to get my head around how they work and would appreciate some help.

Below are the finances rounded down for simplicity:

Current mortgage remaining: 100k

Existing house agreed sale price: £150k

Deposit to take to new house: £50k

New house agreed purchase price: £200k

Additional borrowing: £50k

I am porting the £100k and borrowing an additional £50k from the same lender.

If my buyer pulls out, how much would I need to borrow using a bridging loan to enable me to continue the purchase? 

Would this new loan have any impact on how much I could borrow as a mortgage?

Has anybody got any other thoughts or experience of using bridging loans in this way? 

Thanks

WC

london21

WatchedClock said:

Hi

My buyer looks like they're about to withdraw and I'd like to explore the option of using a bridging loan to continue my onward transaction, but I'm struggling to get my head around how they work and would appreciate some help.

Below are the finances rounded down for simplicity:

Current mortgage remaining: 100k

Existing house agreed sale price: £150k

Deposit to take to new house: £50k

New house agreed purchase price: £200k

Additional borrowing: £50k

I am porting the £100k and borrowing an additional £50k from the same lender.

If my buyer pulls out, how much would I need to borrow using a bridging loan to enable me to continue the purchase? 

Would this new loan have any impact on how much I could borrow as a mortgage?

Has anybody got any other thoughts or experience of using bridging loans in this way? 

Thanks

WC

From my research on bridging loan and the companies i contacted, interest rate varied from 0.51%-0.75% per month depending on how much you are looking to borrow, term of borrowing and LTV. They had a minimum amount threshold they were willing to lend on as well.

They informed me there are 2 types residential which is regulated and BTL.

In the end did not end up using a bridging loan and borrowed from family instead. 

The bridging company will need to do survey, conveyancing etc which you will pay the costs. 

Check with different banks and broker, some banks informed me they do not offer re-mortgage to pay a bridging loan. 

TBagpuss

On the face of it, you would need to borrow £200,000 as you can't use the existing mortgage or equity in your current home to buy the new property if you haven't sold the old one.

I am sure that you would need to tell the lender but as the debt would presumably be cleared on completion so would not affect them moving forward. You would need to check whether it affected you being able to port your existing mortgage 

eddddy

london21 said:

From my research on bridging loan and the companies i contacted, interest rate varied from 0.51%-0.75% depending on how much you are looking to borrow, term of borrowing and LTV.

Just to be clear - that interest rate would be per month.  So that would be around 6% to 9% per year.

Plus facility fees,valuation fees, legal fees etc.

So assuming you need to borrow £200k for 6 months (to buy the new house), that might cost you £10k to £15k in interest and fees. (Do you have savings to cover that amount?)



But there are huge scary risks. For example...

• You buy your new house for £200k
• Then the property market cools, and prices drop by, say, 10%.
• So you have to sell your current house for £135k
• You've paid £200k for your new house - but it's now worth £180k

• So you've £15k less in equity and up to £15k to pay in fees - so based on your numbers you have a shortfall of £30k.

• If you don't have £30k in savings, you'd need now need a mortgage of £180k on the new house. But your new house is only worth 180k - so nobody will give you a 100% mortgage

So if you don't have any savings, you'd be forced to sell both houses to cover your debts...

• Old house for £135k + new house for £180k = £315k
• Pay off your debts : £100k mortgage + £200k bridging loan + £15k bridging loan fees = £315k

So a 10% drop in house prices would potentially leave you penniless and homeless.


(And if you add in EA fees, legal fees etc - essentially you'd be bankrupt.)

steampowered

I would never take out a bridging loan personally.

Bridging lenders make the interest rate look small by expressing it as "0.5% per month", but actually that adds up to a big annual rate.

In addition, you will need to pay an arrangement fee which can be as much as 2% of the value of the property, as well as the EA fees and legal fees.

It's all very expensive. Especially if your next sale gets delayed. It could be cheaper to slash your asking price and try to flog to a cash seller who can buy it quickly for a discount.

babyblade41

No to bridging loans here as well... too expensive especially when you are already in a precarious position... 

powerful_Rogue

I looked at bridging loans, far too expensive in my opinion. In the end I remortgaged my property using a Let to Buy mortgage, which released the funds to use as a deposit. As soon as the house sold, paid off the Let to Buy mortgage. Cost £2000 in total which was just the early repayment charge.

Skiddaw1

It's eye wateringly expensive. A close friend took one out when she relocated from Berkshire to Scotland whilst her Berkshire house sale was going through. She'd expected sale to go through within a few months but in the end it dragged on for the best part of a year. She didn't regret it as she wanted to get up to Scotland ASAP and she had sufficient funds to service the loan but cheap it ain't. I wouldn't do it unless absolutely no other choice.

WatchedClock

Thanks for your comments everybody. The costs alone make bridging loans seem inappropriate and with the market risks on top I think it's a non-starter.

I don't think we've got enough equity to make let-to-buy work but thanks for the suggestion.

What kind of discounts do you typically have to give to entice a cash buyer? I suppose that's unknown until you try. Presumably the 'we buy any house' type outfits make very low offers?

Are there any other options we could explore?

london21

WatchedClock said:

Thanks for your comments everybody. The costs alone make bridging loans seem inappropriate and with the market risks on top I think it's a non-starter.

I don't think we've got enough equity to make let-to-buy work but thanks for the suggestion.

What kind of discounts do you typically have to give to entice a cash buyer? I suppose that's unknown until you try. Presumably the 'we buy any house' type outfits make very low offers?

Are there any other options we could explore?

I prefer auction to 'we buy any house' type company.

user1977

Any reason why it needs to be a cash buyer? You just want somebody without a chain behind them prepared to move quickly, even if they're borrowing it needn't necessarily take a long time.