How can I bridge the gap between my old and new property?

Posted on 9 March 2016 by Martin

I own a highly saleable property in Kent valued around £800,000 that currently has mortgage. I am considering moving to one of a kind property in Wales costing £680,000.  It may take a year to get my present home ready for sale and I don't want to miss out on the house.  It may not be needed, but I want to find out about a bridging loan or exit-free mortgage that could be ready to use if needed. Could you help with any advice? 

Thanks for your question via Ask the Expert section of the John Charcol website. It is possible to raise funds using your existing property by arranging what is known as bridging finance. This is a short term loan secured on the existing property, which literally bridges the gap between the purchase of a new property and the sale of your existing one.  Due to its short term nature and because the amount borrowed often bears no relation to your income, your situation is a typical example of where a bridging loan can help. Bridging lenders look mainly at the asset and exit strategy, which in your case seems to be strong.

You need to be aware that bridging finance is not cheap and there are upfront costs to consider - in addition to a large upfront percentage arrangement fee (for example 2% of the loan required) there will be other upfront legal and valuation costs to consider. Dependent upon your circumstances you could expect to pay up to 2% per month interest. The exact amount will depend on the overall loan to value, the circumstances of the transaction and how much time you have. You may face a “trade off” between the best rate and speed of service.

With the circumstances outlined,  it should be relatively straight forward to arrange a 12 month bridging loan for the £680k to be taken out using your existing home as collateral, with the loan being repaid upon its sale. You also have £100k savings, and freelance income which makes this a more attractive proposition for a bridging lender.

I'd say it's definitely worthwhile having a discussion with a John Charcol consultant who can go through your enquiry in more detail, give advice and explain the payment options that may be available to you. 

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.

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