Posted on 19 February 2019 by DC Turner
My wife wants to lend her mother some money (£175000) to purchase a house for £350000. She will require bridging finance whilst her flat is sold for around £175000. Any suggestions?
Hi DC Turner,
Your situation is a typical example of where a bridging loan can help you secure the property of your dreams before the sale of your existing property goes through.
With the equity of your existing properties you will need to meet your solicitors fees, estate agent fees, stamp duty and other associated costs before calculating how much deposit you put down on the new property. In normal circumstances you then just arrange a mortgage for the difference. The only difference with Bridging finance is you need to arrange a short term loan for the amount of the deposit not yet released.
You need to be aware that bridging finance is not cheap and in addition to a large upfront fee you can expect to pay up to 2% per month interest. The exact amount will depend on the overall loan to value and whether or not you have found a purchaser and exchanged contracts.
There are numerous short term lenders around at the moment who are all touting for business and advertising widely. What they all have in common is high fees and high rates and your wife needs to be careful how she goes about picking the right one.
There are three possible ways of achieving what she wants as follows:
- A bridging loan on her mother's current property secured by either a first or second charge depending on whether or not there is a mortgage already secured on it
- A bridging loan secured on the new property
- A combination of both
The interest rate charged will tend to be cheaper for a first charge and if there is already a mortgage in place it might be better to borrow sufficient funds to redeem this than pay the rates for a second charge. She might also find that by using both the existing and new properties as collateral for the loan she can reduce the interest rates payable?
Some of these Bridging Lenders are not regulated by the Financial Services Authority and my own personal view is that you should look to use one that is. She will also find that they all have slightly different maximum age criteria and depending on her mother’s age this will cut down the choice further.
The alternative is for your wife to raise the money on your own property. Depending on your own circumstances it might be possible to do this by raising an ordinary mortgage, with no early repayment charges, or with bridging finance. This will depend on whether you have sufficient income to support the loan or not.
I believe we can help you and that you would benefit from speaking to one of our independent mortgage advisers. Please call 0344 346 3672 and tell the consultant the date and title of your question, they will then be able to help you find the right mortgage for your situation.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.