Ideally, when buying and selling your house, you want the completion of the sale of your existing house to be on the same day as the completion of the purchase of the house you are moving to. Real life does not always conform to this process of course, so this is where a bridging loan can help.
Many homeowners put up their house for sale and are reliant on this sale to finance the purchase of a new house.
What happens if you find your ideal house, but have not yet got a buyer for your house? Most homeowners will have a mortgage on their house and will also have applied for a mortgage for the new house.
Theoretically, if you want to move without selling your house, you will have two mortgages payments to make: your existing mortgage and the new one. Many people will not be able to afford this. Also, many mortgage lenders will not release the mortgage funds for the new house until your existing mortgage has been paid off from the sale of your home.
The answer is a bridging loan, which is a short-term loan that can be used to complete the house purchase, then repaid with interest as soon as your existing home has been sold.
Even if you have a buyer for your property, there could be a delay in your buyer completing the sale. This could be because of legal complications during the conveyancing process, or it could be because the buyer of their house has pulled out. Again a bridging loan is useful for this situation.
‘The chain’ refers to the process where house selling and buying involves many people. To finance the purchase of a new house may be reliant on selling your existing house. The buyer of your home could also need to sell their house and this also could be the case for their buyer. This chain could entail five, ten or more people. It only takes one of these people to delay buying or purchasing to affect the whole chain. A bridging loan can be used to overcome this.
Another situation where bridging loans are used is at property auctions. It is possible to find below-market prices for houses at auctions. If you successfully bid for property, you will be expected to quickly complete the purchase. There may not be enough time for mortgage funds to be available, so a bridging-loan offers short term finance that can be used until the mortgage application is completed.
How to get a bridging loan
There are many bridging loan providers and many deals available, and a mortgage broker has access to a wide range of deals.
At Ascot Mortgages, we usually make an provisional decision about a bridging loan application in an hour or two, and the money can become available in a matter of days. To discuss your borrowing needs, talk to us today for expert impartial advice.