Bridging loans/short term mortgages

[Austin Allegro]

Anybody have any experience of these?

I'm hoping to move but it seems nowadays the old system of putting in an offer then putting your own property on the market is considered old hat and a lot of people want me to have at least an offer agreed in principle before they will accept my offer on their property and start the chain moving. Seems odd to me, but I've only bought houses for cash before.

I'm hoping to move to a property costing c.£450k.  I have £300k in savings, plus an extra £50k for fees, costs, extra stamp duty etc.

So I wondered about getting some sort of bridging loan/short term mortgage for about £150k based on the security of my house, which would enable me to become a cash buyer and then hopefully get a lower offer accepted on the house we want. It will also make it less stressful to move as we won't have to co-ordinate an exchange date.

Do vendors accept an 'agreement to a bridging loan in principle' as sufficient security to treat me as a cash buyer?

Interest, fees etc seems to work out at about £800 pm for a bridging loan and about £450 pm for a short term mortgage.

I'm also self-employed which probably doesn't help.

Any thoughts welcome, before I start phoning brokers etc.

Edited April 7, 2023 by Austin Allegro

[onlyme]

Everything I have ever heard abut them (not a huge amount to be fair though) has been they can be risky - they get you into a very tricky situation and to avoid them if at all possible.  Getting one for a perceived advantage of being a cash buyer in order to gain a better deal seems a bit of a tenuous reason to get one.  What about a rock solid buyer that is in a cash purchase decision, is the place you have to sell already at a price that could attract one? How deopserately do you want this pareticular house - I suppose a lifetime buy for the perfect property you;d want to do whatever you could to secure but even then things can fall apart, you could still lose your buyer and  still have the sale fall through.

[Inigo]

My parent's neighbours nigh on bankrupted themselves with a bridging loan.  There initial house didn't sell as quickly as they hoped and the bridging loan burnt through their available cash/equity very quickly, it was a very high interest rate.

[Jay]

6 minutes ago, Inigo said:

My parent's neighbours nigh on bankrupted themselves with a bridging loan.  There initial house didn't sell as quickly as they hoped and the bridging loan burnt through their available cash/equity very quickly, it was a very high interest rate.

Yes that is the major drawback..the interest rates are higher than mortgage rates..meant to be used short term but houses can take to sell, fall through etc…thanks for sharing..

[AlfredTheLittle]

You can just tell the estate agents you're a cash buyer, they don't carry out any checks.

[Malthus]

My thoughts are you’d have to be mental @Austin Allegro

My parents did it in the 90’s because my mum didn’t want to miss out on their perfect retirement bungalow 

The sale of their house fell through and they ended up taking a bad offer for a quick sale plus the costs of servicing the bridging loan for 5 months , very painful experience 

[spygirl]

5 hours ago, onlyme said:

Everything I have ever heard abut them (not a huge amount to be fair though) has been they can be risky - they get you into a very tricky situation and to avoid them if at all possible.  Getting one for a perceived advantage of being a cash buyer in order to gain a better deal seems a bit of a tenuous reason to get one.  What about a rock solid buyer that is in a cash purchase decision, is the place you have to sell already at a price that could attract one? How deopserately do you want this pareticular house - I suppose a lifetime buy for the perfect property you;d want to do whatever you could to secure but even then things can fall apart, you could still lose your buyer and  still have the sale fall through.

 

3 hours ago, Inigo said:

My parent's neighbours nigh on bankrupted themselves with a bridging loan.  There initial house didn't sell as quickly as they hoped and the bridging loan burnt through their available cash/equity very quickly, it was a very high interest rate.

Yeah this.

Plebs only take them out when the housing market slows - tend to be nit needed when markets booming n banks are free with money.

Then stuff goes wrong and they end up on a 3%-5% month compounding.

This can go on for 12-24 months.

Chuck in losing your job ...

Clusterfuck.

 

[roundhouse]

4 hours ago, AlfredTheLittle said:

You can just tell the estate agents you're a cash buyer, they don't carry out any checks.

They did with me - proof of funds alongside offer (or next day). Maybe because self-employed though, or maybe because I don't live a wealthy lifestyle so don't look the part.

Viewed a house two days ago, was asked if I was a property investor... or buying for myself. Not the first time it's been asked or assumed - makes me "annoyed" obviously but worse mistrustful like an investor will get a better deal (which we know is true as @Pip321 has said so). Didn't want it - garden not enough sun and too small. But went under offer next day. 

Edited April 7, 2023 by roundhouse
Adding

[AlfredTheLittle]

17 minutes ago, roundhouse said:

They did with me - proof of funds alongside offer (or next day). Maybe because self-employed though, or maybe because I don't live a wealthy lifestyle so don't look the part.

Viewed a house two days ago, was asked if I was a property investor... or buying for myself. Not the first time it's been asked or assumed - makes me "annoyed" obviously but worse mistrustful like an investor will get a better deal (which we know is true as @Pip321 has said so). Didn't want it - garden not enough sun and too small. But went under offer next day. 

Fair enough, sounds like they do check then. However, the principle still applies - @Austin Allegro doesn't need to tell them  he has a house to sell, and could always take out a mortgage on the one he's buying (or his current one) rather than a bridging loan, in the same way as any other chain free buyer.

Edited April 7, 2023 by AlfredTheLittle

[Pip321]

11 minutes ago, roundhouse said:

They did with me - proof of funds alongside offer (or next day). Maybe because self-employed though, or maybe because I don't live a wealthy lifestyle so don't look the part.

Viewed a house two days ago, was asked if I was a property investor... or buying for myself. Not the first time it's been asked or assumed - makes me "annoyed" obviously but worse mistrustful like an investor will get a better deal (which we know is true as @Pip321 has said so). Didn't want it - garden not enough sun and too small. But went under offer next day. 

I think asking a buyer their circumstances more generally is fair enough but the way you described how you have been asked re investor/owner occupier I agree and understand why you would be annoyed.  

Not least because my experience of investors is they are fickle, have no skin in the game and are even more likely to back out or change an offer last minute. Owner occupiers are often more committed at the outset. I generalise of course. 

My personal circumstances (as investor) were slightly different…I made sure I had a reputation with 2/3 agents so that if I gave my word then I bought at the price agreed unless the house had some ridiculous hidden issue eg subsidence, title problem. 

More generally re the proof of funds, solicitors have always asked for these when they start the conveyancing as Money Laundering process….and agents probably ‘should have’ but sometimes never followed through, I guess relying on the solicitor to flag issues. But the last couple I bought (and that is now a fair few years ago) they did ask for proof of funds….it felt like the process had been made a bit more of a robust from the sellers viewpoint. I am sure some agents will not bother though….they aren’t the most consistent bunch of guys 🤦🏻‍♂️😆

 

[Pip321]

14 hours ago, Austin Allegro said:

Anybody have any experience of these?

I'm hoping to move but it seems nowadays the old system of putting in an offer then putting your own property on the market is considered old hat and a lot of people want me to have at least an offer agreed in principle before they will accept my offer on their property and start the chain moving. Seems odd to me, but I've only bought houses for cash before.

I'm hoping to move to a property costing c.£450k.  I have £300k in savings, plus an extra £50k for fees, costs, extra stamp duty etc.

So I wondered about getting some sort of bridging loan/short term mortgage for about £150k based on the security of my house, which would enable me to become a cash buyer and then hopefully get a lower offer accepted on the house we want. It will also make it less stressful to move as we won't have to co-ordinate an exchange date.

Do vendors accept an 'agreement to a bridging loan in principle' as sufficient security to treat me as a cash buyer?

Interest, fees etc seems to work out at about £800 pm for a bridging loan and about £450 pm for a short term mortgage.

I'm also self-employed which probably doesn't help.

Any thoughts welcome, before I start phoning brokers etc.

Technically this isn’t a full bridging loan. A bridging loan would be where your existing house already has a mortgage eg £200k. You need a mortgage on the new house eg £200k. Oh, and you haven’t sold so you need £100k deposit so you borrow that as well on a ‘bridge.’  So someone who can afford £200k owes temporarily £500k and has 3 mortgages until house one sells…..and that why bridging is expensive and a bad idea.

However that’s a picky technicality, effectively I think you are saying you will owe more than you can truly afford on the basis it’s short term…..and in this market that would be really dangerous. 

My daughter has now moved twice in the past few years (3 kids etc…not easy) and both times she just bit the bullet. She marketed hers, she sold it (subject to contract) and then found and bought somewhere with an expectation that she may have had to move to temporary accommodation. All very stressful and indeed the whole family moved in with us for a few weeks to facility the last move…that was fun 😆🤦🏻‍♂️

So my solution is not the easy path….but in this market I wouldn’t recommend anyone leaves themselves over exposed to debt or property.  

[Don Coglione]

20 hours ago, roundhouse said:

They did with me - proof of funds alongside offer (or next day).

#MeToo.

[spygirl]

There is another thread in this one - What is todays proceedable buyer?

This is another variantion of the my current obsession - How many active local FTB are there?

I ask as theres people who, on paper will look OK then when they enter into mortgage process will get a big fat fuck off.

PCP car? FUck off (or at least ~20k knocked off mortgage amount).

IVA - Really fuck off?

Short term contract/self employed - Doors over there.

Household income less than 40k? LHA that way.

etc etc.

 

 

[Austin Allegro]

On 07/04/2023 at 15:43, AlfredTheLittle said:

You can just tell the estate agents you're a cash buyer, they don't carry out any checks.

Both my previous house purchases have been for cash and both times the EA asked for proof - I had to show bank statements and they would not accept one with the account details redacted either.

[Austin Allegro]

On 07/04/2023 at 21:06, Pip321 said:

I think asking a buyer their circumstances more generally is fair enough but the way you described how you have been asked re investor/owner occupier I agree and understand why you would be annoyed.  

Not least because my experience of investors is they are fickle, have no skin in the game and are even more likely to back out or change an offer last minute. Owner occupiers are often more committed at the outset. I generalise of course. 

My personal circumstances (as investor) were slightly different…I made sure I had a reputation with 2/3 agents so that if I gave my word then I bought at the price agreed unless the house had some ridiculous hidden issue eg subsidence, title problem. 

More generally re the proof of funds, solicitors have always asked for these when they start the conveyancing as Money Laundering process….and agents probably ‘should have’ but sometimes never followed through, I guess relying on the solicitor to flag issues. But the last couple I bought (and that is now a fair few years ago) they did ask for proof of funds….it felt like the process had been made a bit more of a robust from the sellers viewpoint. I am sure some agents will not bother though….they aren’t the most consistent bunch of guys 🤦🏻‍♂️😆

 

My last house was bought by a property investor, who gazundered me just before exchange. I kind of knew it was coming though, because he offered full asking price originally, and I had budgeted in a drop anyway. I accepted a slightly lower offer (half the discount he wanted) and it all went ahead ok after that.