Whilst the buying and selling process will usually come together at the same time there are instances when this is not so and buyers find themselves unable to release the anticipated equity in their current home, or homes, to fund the necessary deposit on their next purchase.

To avoid losing the property they may have spent a lot of time finding short tern finance in the form of a Bridging Loan may be the only answer. The following is a typical bridging scenario and should help to explain how the process works;

• The applicants has a property on the market for £200,000 with a mortgage of £100,000
   
  
• They are looking to purchase a property for £300,000 but have not sold their current property
   
  
• Potentially the lender will consider lending the client a maximum of up to 75% to 80% of the value of their current property, including any mortgage balance owing. In this case this could amount to £160,000 which would repay the mortgage of £100,000 and ‘free up’ funds of £60,000 towards the cost of the new purchase
   
  
• The purchaser would then need to arrange a further mortgage of £240,000 to cover the difference. Whilst this can be done elsewhere, it may help to strengthen the overall submission if it were arranged with the same lender that arranged the bridging finance
   
  
• To service interest payments on the bridging loan the lender would typically require the borrower to deposit at least 6 months worth of interest only payments in a separate savings account at the outset. The 6 month period is chosen as you would usually expect to sell the current property and redeem the loan during this period
   
  
• Typical fees and interest rates for such a facility would be an arrangement fee of 1% of the bridging loan (which can usually be added to the loan if required) and an interest rate of 3% above Bank of England base rate
   
  
• Based on current interest rates the deposit fund to allow for 6 months of interest payments would amount to approximately £7,000. If such an amount is not available it could be worked that this is taken from the amount being ‘freed up’. And if the overall loan to value required is a relatively modest 50% or less the lender may even agree to the interest being ‘rolled up’ on the facility until eventually repaid from the sale proceeds

Basically the lender will consider any proposition providing it falls within their general guidelines.

Paramount Mortgages has strong links with lenders who can arrange bridging finance. If you need to talk through a potential scenario please get in touch.