is a bridging loan a good idea for me?

kev1744

hi all,
looking for some advice. i currently own my house outright with no mortgage. im looking at moving and have seen a house i really like. i have some savings as well and was looking at possibility of getting a bridging loan to allow me to purchase the house before having sold mine. ( ive not even got mine on the market yet hence why im considering it)
has anyone done this? pros and cons?

if it helps, the loan would amount to about a third of the cost of the new house, the remainder being paid via my savings and then the loan would be paid off when my current house sells.

km1500

you may not even get one - banks don't like open-ended bridging loans they are typically agreed only once a sales contract has been signed

That's not to say you won't get a loan though - have you thought about a standard mortgage or standard bank loan?

Cons are you have to pay interest - which can mount up. Cons are you get the house you like.

kev1744

i have looked at a mortgage instead, however i have a yearly income of £20k and im fast approaching the age of 55 so wasnt sure if i could get one for the amount needed at a reasonable cost

km1500

Any loan, especially a bridging loan, will be significantly more expensive than a mortgage.

What kind of prices, loans etc are we talking about ?

SDLT_Geek

kev1744 said:

hi all,
looking for some advice. i currently own my house outright with no mortgage. im looking at moving and have seen a house i really like. i have some savings as well and was looking at possibility of getting a bridging loan to allow me to purchase the house before having sold mine. ( ive not even got mine on the market yet hence why im considering it)
has anyone done this? pros and cons?

if it helps, the loan would amount to about a third of the cost of the new house, the remainder being paid via my savings and then the loan would be paid off when my current house sells.

You would need to allow in your budgeting for the extra stamp duty.  Assuming you are buying in England, the relevant tax is stamp duty land tax.  If so, extra SDLT would be payable on completion of the purchase, but the extra should be recoverable if you sell your former home within 3 years. 

The extra is presently 3% of the price, but that might be increased in the Budget on 15 March 2023.  The extra for additional properties in Scotland is now 6% of the price!

kev1744

to clarify....
new house is £300k, i have £150k savings and current house is valued at about £250k.....hope that helps.

km1500

then if you use all your savings you are looking at borrowing 180k-ish. Check what monthly payment this equates to see if you can afford it.

Since (i assume) you are just changing main residence you can claim the additional 3% back once yours is sold.

AskAsk

my current buyer is buying my house with a bridging loan, which i feel very uneasy about but the estate agent assures me that it is fine as he recommended the broker to the buyer and the broker had seen the paperwork from the buyer to confirm that the bridging loan will be available to them.

they are in your position.  they liked my house but haven't put theirs on the market.  they are in better financial position than you as they are both high earners and their own property is a lot more expensive than my house so they are releasing equity in moving.  they wanted me to wait 4 weeks for them to sell their house but i told them that is too long to wait, so the EA had persuaded them to get the bridging loan.

your first bet would be to speak to a broker and see if it is possible for you to get a bridging loan.  your salary being low may make it difficult.  may be think about putting your house on the market?

Annisele

kev1744 said:

i have looked at a mortgage instead, however i have a yearly income of £20k and im fast approaching the age of 55 so wasnt sure if i could get one for the amount needed at a reasonable cost

kev1744 said:

to clarify....
new house is £300k, i have £150k savings and current house is valued at about £250k.....hope that helps.

I'm sorry, but based on those figures I don't think it's realistic to buy the new house before you've sold yours. You'd need to borrow well over £160k to bridge the gap between your savings and the new house plus stamp duty plus costs. 8 times salary just isn't available - that's not to do with your age; it's just too high a salary multiple.

A bridging loan would be even worse than a standard mortgage. Rates are usually in the region of 0.5% to 1% per month - so even if you could get one, you'd be paying £800 to £1,600 a month to service it (whilst also paying for the upkeep on two houses). That doesn't look affordable on a £20k salary.

kev1744

oh well back to drawing board then.guess ill just have to either save some more or hope a house comes up i like when i sell mine