Bridging the gap between house sale and purchase

jetplane

We are currently mortgage free and have some savings. Ultimately we will use the money from the sale of our house to purchase a house that we are looking to buy. 

My question is what is the best way to borrow some money if we need to complete a purchase before our house is sold?

We could put a 100k deposit down and then would need to raise around a further 150k to bridge the gap which would be paid off when our house sold. 

Would a re-mortgage of our current property or an endowment mortgage on the new property be an option?
Also I think the stamp duty would be a lot higher as it would technically be a second home. How much of that extra stamp duty could I claim back?
Thanks

Flugelhorn

you would pay an extra 5% of the purchase price of the new property but would get that back if you sold the old property within 3 years.

honestly not sure re getting the money - 150K is quite a bit, if you got a mortgage then there may be an early redemption charge or at least a hefty arrangement fee. 

Not sure what you mean by an endowment on the new property?

jetplane

Thanks, I meant rather than re-mortgaging my current home to raise the money would taking out an endowment mortgage on the new property be another option.

2childmum2

You can take out a bridging loan
https://www.moneysupermarket.com/loans/bridge-loans/

Flugelhorn

jetplane said:

Thanks, I meant rather than re-mortgaging my current home to raise the money would taking out an endowment mortgage on the new property be another option.

yes you could mortgage the next property - doesn't have to be an endowment. Actually thinking about it I did this once -  bought a house for 500 with deposit and mortgage but didn't sell the old house (mortgage free )  immediately - I had an offset mortgage which meant that I could add the proceeds of the eventual sale to the mortgage account quite easily 

ACG

It would be a bridging loan. Typically around 0.65%-1% per month with fees of around 1-2%.
Regulated bridging loans are not overly common though. Might be worthwhile speaking to a broker.

jetplane

Thanks I couldn't find a lot about bridging loans other than they can be very expensive. I have emailed my mortgage adviser but I know on here people have ideas that I would never think of.

eddddy

jetplane said:

My question is what is the best way to borrow some money if we need to complete a purchase before our house is sold?

If you want an open bridging loan (i.e. you will exchange contracts on your purchase, before exchanging contracts on your sale), I guess you've considered the risks.

Some 'worst case scenarios' might be...

- You might be paying £1.5k per month in bridging loan interest, and maybe your sale falls through (and maybe a 2nd sale falls though) - so maybe it takes a year to reach completion.

- Your buyer's survey / searches on your current house show up problems, which take a long time to sort out and/or mean you have to drop the price

- The property market tumbles and you have to significantly reduce the selling price of your current house to attract buyers. i.e. You've bought the new place when the market is high, but you have to sell the current place when the market is low. (But I guess the opposite could also happen - and the property market booms.)


So it might be safer and simpler to reduce the price of your current house by £10k or £15k or whatever, in order to get a quick sale - rather than take on a bridging loan.

twopenny

My house got  offers as soon as it went on the market each time 
The first the buyer couldn't sell their house for 6mts before I had to market it again. 
The second , no chain,changed their mind on location after dragging it along.
The third , no chain, dragged it out for three months with this and that wanting a discount.

If there's a chain it can fall apart at any time.

Friend borrowed money from his friend. Nice house but because he had already moved he found people wanted considerable discount knowing he was needing the money. 

So take care.

I was asked to hold the house on the first occasion and offered £7,000 extra if I would wait.
I agreed as it was a mutual agreement, I hadn't found somewhere so I agreed. I wasn't told his house wasn't actually on the market and he wanted to do it up first.
But yours is. It might be worth a try because people prefer to move in the summer.

jetplane

Thank you those are the reasons I had dismissed the idea of a bridging loan.

While we could afford to buy the second house on a mortgage and wait for ours to sell reducing the price to offset costs is an idea I hadn't thought of.

The reasons for considering bridging the gap are exactly what you say about getting stuck in a chain my end as the seller is chain free.