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Asking on behalf of someone else..... In order to secure a new build house they need their current house to be "Sold STC" (this is in England). This is what the large national developer has said they require. They had their house Sold STC and put a (small) deposit on the new build. However their buyer dropped out and now they might lose the new build. They'll probably easily sell again, but there is always the risk of the next buyer dropping out.
The developer isn't interested in PX.
So one option I said they could look into is a bridging loan, even just to have it in principle to secure the new house. However other than what they are used for I don't know a lot about getting and using one.
Their current house is mortgaged and the new build they are looking at is more expensive (and will also be mortgaged). The loan would be used to purchase the new house, then paid off when the current house is sold.
Are bridging loans easy/difficult to come by? Are they even suitable for the situation? Do you need a deposit for the bridging loan, or can it be for the full value of the new property?
Any other ideas?
Speak to a broker or the Bank directly, criteria can be quite specific and you pay through the nose in interest for them.
Can you credit card it? Might be easier and cheaper!
Speak to a broker but we considered a bridging loan some time ago for a similar reason and the deposit needed was quite astronomical.
Taking a bridging loan is very risky - I wouldn't do it, my father in law lost a lot of money that way.
A bridging loan will be available if they have enough equity i.e. if they are not maxing out on the mortgages. The bridge will typically take out the old mortgage and provide additional funds that would enable the purchase to happen then be repaid on sale of the old house. Just like a normal mortgages they work on a LTV basis and the better your position the easier it will be.
Assuming they have enough equity to get one the second issue is cost. A bridge lender makes money of a higher risk loan out for a short period of time - so expect big fees and a very different interest rate to a normal mortgage.
Most people give up on point 2.
Can you credit card it? Might be easier and cheaper!
What blummin credit card have you got?
Thanks. I think a bridging loan is going to be prohibitively expensive, plus the risk is there if they don't sell promptly. There are a few other developments in the area and I think PX would be their best bet for getting some security.
What blummin credit card have you got?
STW Members lounge gold card in black stealth limited edition colour.
Credit limit of 14 groats or 200 turnips; whichever is the greater of the two.
I really would advise against this. It puts you in a very vulnerable position. Better to find a smaller house they can easily afford. prices might start to go down a bit over the next year so renting after selling for 6 months would not be that wasteful.
I know people with no mortgage and a load of 0% cards...
You could easily pull 25k on a card if needed
If they have a good amount of equity in the existing property then it would be worth talking to a good independent mortgage advisor. I know of someone who needed to do something similar and I don't think they had a bridging loan but some kind of let-to-buy mortgage on the house they were selling.
I really would advise against this. It puts you in a very vulnerable position.
I agree it does seem quite risky. The problem they have is every new build developer is asking for their current house to be Sold STC before they'll let them reserve a property. They were SSTC, but it fell through so they lost the house they reserved (along with the deposit £500 or so). This could just keep happening again and again. I've suggested there are probably financial arrangements available to decouple the two and be able to demonstrate that they don't need to sell their current house to buy the next.
I should add there are time constraints for the move as they are in the military and being posted elsewhere.
PXing is one, but they are getting hung up on not getting the 'market value' for their current house. Obviously you won't, but you've got to consider the whole transaction and all other costs, potential or actual. It might be the best overall option.
Bridging loan is another but risky and expensive.
As was mentioned here and elsewhere, switching the current mortgage to buy to let might be an option too..... I'm curious about how that would work
Seems the last option would actually be a "let to buy" mortgage. You're looking to let out your current property to buy a new one to live in..... then I guess you pay off the let to buy mortgage when your current house sells?
Getting all of this in principle (let to buy mortgage and a mortgage for the new house) might be all that's required. It's just a fall back to demonstrate to the developer. Meanwhile you keep the current house on the market and hope it sells.....
Bridging loans are fine... if you pay them back on time. However they are far more suited to developers and professional landlords who use them whilst money is shuffled around rather than Mr & Mrs (or of course Mr &U Mr, Mrs & Ms etc) whoa re hoping their house sells on time.
The penalty rates for not paying it back within the specified timescales are very very high and given your friends so not even have a buyer yet I would not think a bridge is a suitable solution.
The leftfield option is to stick it on the market somewhere between the PX value and the market value, accept you are going to miss out on a bit of cash but in return for a quick sale and securing the house of their dreams
the final option is to sack the idea of a new build off and look at other properties in the area. Personally (and of course TMMV) I can't think of anything worse than a new build...
As above be Very careful...we applied for one on our last property purchase, in 2016, there was a problem at survey stage, due to an under dwelling under half of a upstairs bedroom, even though we'd been approved for the money in principle.
So we decided not to proceed with the bridging loan, as they wanted to put it on another property we selling instead of the one we wanted to purchase.
The terms and conditions in the small print for cancellation by us ended up costing us £3k even though we didn't even take the loan in the end!
Could you use the bridge for a deposit and get a mortgage for the rest to buy the new home?
When you have sold your old one you could pay off the bridge.
Do your due diligence as mentioned about obvs.
Can't see why a developer cares about your home being SSTC. The just need to know your have the finances in ace to proceed.
Maybe something like WeBuyAnyHouse sort of thing? May get a bit less but maybe less than they stand to lose?
In the same situation 5 years ago I simply told the developer I was keeping the old house to rent out. Isn't that an option?
Thats your best best, take all the details to a broker and ask them to sort mortgage on new house and buy-to-let on the old and hope the old one sells before the new house is finished.
This is assuming you have decent equity / cash.