Trouble selling my home
Q: I’m having trouble selling my home and it’s holding up the upward chain and purchase of my new home. I’m considering a bridging loan – what should I watch for?
Bridging loans can be useful, but you should only proceed with caution. They should only be used as a last resort – if you think your property chain delays are a problem, consider the problems you would have of trying to pay off two mortgage sized debts at once if things went wrong. You should only take out the bridging loan if you have a plan B for the worst case scenario if you fail to sell your home – such as renting out your old home to cover the interest payments. If you would be unable to cover both your new mortgage on your new property and the bridging loan, then you could lose everything if you fail to sell your house. You should not consider such a high risk strategy.
If the bridging loan is unsecured, it can have very high interest rates indeed – as much as 30% a year (reflecting the fact they are seen by lenders as high risk). A potentially cheaper alternative is to extend the mortgage on your existing home with a mortgage that doesn’t have any redemption penalties, so you can pay it off within months of taking it out when you do finally sell.
The advantage of a bridging loan is that it helps keep the process of buying your home on track and stops you losing money already invested in the process. If your credit history is good, and you are certain the sale will happen or that you can cope financially if it doesn’t, then a bridging loan can be a good option.
If you are simply struggling to sell your current property and have already found your new dream home, then unless you are very well financed, a bridging loan is almost certainly not the answer.