Is a "bridging" loan the opion in this case? How/who/what or what else? Details in post.

maxxpayne

Hi There,

Apologies for the strange title - new to this so I'm not sure what the correct terms are.

My situation in brief:

• We plan to buy a house and have an accepted offer on it for 575k
• The new house requires full refurbishement. We estimate 80-100k
• Refurbishment time will be 3-5 months
• We have an existing flat with the council offering us 450k if we sell. The outstanding mortgage on it is 105k, netting us 345k
  

Originally, we planned to BTL our current flat and use the remortage as deposit to the new house. Cucially, stay in the current flat while we were refurbishing the new house to avoid moving hassle with two young kids.

However, due to taxation and SDLT changes, BTL simply doesn't look viable (see this post) and now we're contemplating selling our flat instead.

The challange:

How do we secure funding for the new house before we sell the current house?

How much cash do we have?

We currently have a total of 188k in savings that can go towards the the new house and the refurbishment work needed.

Some options we are thinking of:

• We put down a deposit of ono 160k. Which gives us LTV around 28%. We get whatever mortgage we can on this LTV (the interest rates will be terrible) but try to arrange something that has as much as overpayment provision as possible, so the moment we sell the flat, we take the 345k and use as much as of that possible to overpay. Mortgage around 2350/PCM
  
• We use the full 188k as deposit. We try to use our salaries/credit card etc. to try to manage the renovation. Mortgage around 2187/month
  
• We try to find some type of loan. That's where this post comes in. If we can find a loan of 140k, we can have a total despoit of 300k, putting us at 53% LTV and Mortgage around 1540/month. Of course the loan itself has to be of favourable rates

So what do we do now?

Is a smaller deposit and overpayment as compensation the way to go? I have no idea how to calculate this.

Or

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be? Will the fact that we have a willing buyer for the flat help secure such a loan?

Thoughs and inputs welcome as usual.

CliveOfIndia

maxxpayne said:

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be?

Well, this is exactly the type of situation that Bridging Loans are designed for.  However, they do tend to be very expensive.  Like anything, it pays to shop around - but you'll have to expect the interest rates to be substantially higher than a typical residential mortgage.

maxxpayne

CliveOfIndia said:

maxxpayne said:

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be?

Well, this is exactly the type of situation that Bridging Loans are designed for.  However, they do tend to be very expensive.  Like anything, it pays to shop around - but you'll have to expect the interest rates to be substantially higher than a typical residential mortgage.

Cool. So where does one get a bridging loan? Unlike mortgage it doesn;t look straightforward enough? Not to mention finding a deal is challenging?

CliveOfIndia

maxxpayne said:

CliveOfIndia said:

maxxpayne said:

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be?

Well, this is exactly the type of situation that Bridging Loans are designed for.  However, they do tend to be very expensive.  Like anything, it pays to shop around - but you'll have to expect the interest rates to be substantially higher than a typical residential mortgage.

Cool. So where does one get a bridging loan? Unlike mortgage it doesn;t look straightforward enough? Not to mention finding a deal is challenging?

Most of the well-known banks offer them - just stick "bridging loan" into Google and you'll find any number of providers.  You may well find that the eligibility criteria are a touch more strict than for a straightforward mortgage, and the costs are higher, but they're not an uncommon financial product.

If there's any way you're able to finance the "bridge" yourself then that would be preferable (savings, cashing in bonds, whatever), you'll save yourself a fair wedge of interest.  But understandably that's not always realistic, so a bridging loan will give you what you need.

Just make sure you read and understand the T&Cs before signing on the dotted line.  Yes, it's only a short-term loan, but given the costs involved it's well worth taking the time to understand exactly what you're signing up for - especially if you end up needing the loan for longer than you originally anticipated (renovation work can very often end up taking longer than expected).

silvercar

I’ll move this thread to the mortgage board.

amnblog

What is key here is the condition of the new property currently and the intended work.

If it is perfectly habitable as is and you just seek to get it where you want it, that sounds like a standard mortgage.

If it is currently a mess you are probably looking at a bridging loan.

Either way, you need to speak to a competent mortgage broker.

ACG

I agree with amn. 
Is the new house habitable? If it is, you coud raise a normal mortgage on it, subject to affordability of the old and new mortgage. Some even allow you make unlimited overpayments so when you get the cash from your current place you could pay off a large chunk. 

A normal mortgage is going to be a lot cheaper than a bridge. 

But again, as amn says speak to a broker. They can look at everything in detail and help guide you.

maxxpayne

amnblog said:

What is key here is the condition of the new property currently and the intended work.

If it is perfectly habitable as is and you just seek to get it where you want it, that sounds like a standard mortgage.

If it is currently a mess you are probably looking at a bridging loan.

Either way, you need to speak to a competent mortgage broker.

It is habitable - but there's no way we'd live in it while extensive work is being carried out. Are you suggesting that a bank will allow us to live the flat till work is done, move to house and sell?

That's ideal and yes, we could definiyely afford two mortages. Where does one find a competent mortgage broker?

I was planning to use better.co.uk

MWT

maxxpayne said:

That's ideal and yes, we could definiyely afford two mortages. Where does one find a competent mortgage broker?

I was planning to use better.co.uk

I would start with the assumption that a 'free' broker is not going to be the best choice for your needs...

Ask friends and family is you can, see who they have used.

Regarding affordability, there is always going to be a difference between what you can afford and what the lender will decide you can afford so maybe try one of the mortgages lenders calculators and see what it say if you want an early idea, or just let the broker do the work and see what they say...

saajan_12

maxxpayne said:

Hi There,

Apologies for the strange title - new to this so I'm not sure what the correct terms are.

My situation in brief:

• We plan to buy a house and have an accepted offer on it for 575k
• The new house requires full refurbishement. We estimate 80-100k
• Refurbishment time will be 3-5 months
• We have an existing flat with the council offering us 450k if we sell. The outstanding mortgage on it is 105k, netting us 345k
  

Originally, we planned to BTL our current flat and use the remortage as deposit to the new house. Cucially, stay in the current flat while we were refurbishing the new house to avoid moving hassle with two young kids.

However, due to taxation and SDLT changes, BTL simply doesn't look viable (see this post) and now we're contemplating selling our flat instead.

The challange:

How do we secure funding for the new house before we sell the current house?

How much cash do we have?

We currently have a total of 188k in savings that can go towards the the new house and the refurbishment work needed.

Some options we are thinking of:

• We put down a deposit of ono 160k. Which gives us LTV around 28%. We get whatever mortgage we can on this LTV (the interest rates will be terrible) but try to arrange something that has as much as overpayment provision as possible, so the moment we sell the flat, we take the 345k and use as much as of that possible to overpay. Mortgage around 2350/PCM
  
• We use the full 188k as deposit. We try to use our salaries/credit card etc. to try to manage the renovation. Mortgage around 2187/month
  
• We try to find some type of loan. That's where this post comes in. If we can find a loan of 140k, we can have a total despoit of 300k, putting us at 53% LTV and Mortgage around 1540/month. Of course the loan itself has to be of favourable rates

So what do we do now?

Is a smaller deposit and overpayment as compensation the way to go? I have no idea how to calculate this.

Or

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be? Will the fact that we have a willing buyer for the flat help secure such a loan?

Thoughs and inputs welcome as usual.

maxxpayne said:

CliveOfIndia said:

maxxpayne said:

Can I get a loan of 140k for 3-5 months? Who do I get it from and what type of rates it'll be?

Well, this is exactly the type of situation that Bridging Loans are designed for.  However, they do tend to be very expensive.  Like anything, it pays to shop around - but you'll have to expect the interest rates to be substantially higher than a typical residential mortgage.

Cool. So where does one get a bridging loan? Unlike mortgage it doesn;t look straightforward enough? Not to mention finding a deal is challenging?

Crucially, this 140k loan would be in addition to a mortgage on the new property and the current mortgage on the flat?

If so, the new mortgage provider wouldn't give the same rates as on a 53% LTV mortgage, because the deposit isn't fully coming from you and the affordability assessement would be the same as if you had a 28% ish LTV. Also by 'expensive rates', its very expensive.. think 10-20% annually, plus fees.

If you're going to borrow the 140k, I can't see any benefit in a bridging loan over increasing the mortgage on the flat or on the new property. Use a tracker product without ERCs so you can pay it off a few months after in full and get a new lower rate on the new property for the amount you need longer term. Much cleaner and much cheaper. 

maxxpayne

What about another option? Do I really need to convert the existing flat to BTL? Can I not simply continue with the current mortage and just buy the new house and sell the flat later when we move into the new house?