A guide to some of the different financial options for property purchases

Thursday, 01 March 2012 05:02

Bridging finance can help you buy a new home

The problems experienced by the housing market since 2008 are well documented.

First-time buyers in particular face a hard time getting a foot on the property ladder, with mortgage lenders asking for sizeable deposits before granting mortgage finance.

There are various schemes in place to help those looking to purchase their first home, however, what if you are not a first-time buyer and you are keen to upscale?

If this applies to you, there are various finance options you can explore, including bridging finance, and mortgages.

Bridging loans

Bridging loans are commonly used by those who want to buy a new home but have yet to sell their existing home.

These loans can take one of two forms – open and closed.

An open loan is available to those who find themselves in the situation outlined above.

You can secure the loan against your existing property and use it to buy the new home you are keen to secure. The loan is then repaid once you have sold your current home.

If this is something you plan to do, you must take into consideration the length of time it could take to sell your existing home. The housing market is going through a difficult time and it could take months or even years before you sell your house, meaning the final repayment figure could be much bigger than the amount you receive from the sale of your home.

Closed bridging loans are available to those who have exchanged contracts on their existing home but have yet to tie up the loose ends and receive the money. In this situation, a closed bridging loan allows you to buy the new home you want and you repay it with the proceeds of your house sale.

Bridging loans are also commonly used by property investors buying homes at auction. In such circumstances, bridging finance is used to buy the property and is then repaid once the buyer has sold it on at a profit.

The same is true of property developers. Bridging loans are often used to secure rundown or derelict properties which are then renovated and sold on.

Depending on the nature of your purchase, bridging loans could work for you. However, it is important you know all about bridging loans and their advantages and disadvantages before taking one out.

Mortgage

Mortgage lending may be restricted but if you are an existing homeowner, you stand a better chance of being approved for a mortgage on a second property.

The mortgage lender may request that you use your existing home as collateral and may require a deposit from you, which could run into thousands of pounds.

There are many advantages to taking out a mortgage, including the fact that the repayments will be made on a monthly basis as opposed to one lump sum as is the case with bridging loans.

Speaking to a mortgage adviser will help you learn more and help you make an informed decision either way.

You should also speak to an adviser at a bridging loan company to learn more about their loans and whether they represent your best option.

The property market is going through a turbulent time at the moment but there are some bargains to be had, so do not let a lack of finance hold you back.

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