by Mark Johnston
More well off borrowers are increasingly using bridging loans to help them finance a new home. Some mortgage brokers see this as a sign that the market is slowing down even further and weakening.
Those homeowners that are looking to move house are finding it hard to sell their property. This is due to falling house prices and a squeeze on credit where first time buyers are being priced out of the market as banks and building societies look to reduce their risk by asking for high deposits.
This is causing some potential home movers to look at other ways to progress their new house purchase. Home owners who have not managed to sell their current property but are still looking to purchase their new home are looking to bridging loans as a way get things moving. These loans allow movers to buy a new property before they sell the sale of their current property goes through in order to now miss out on deals or the home of their dreams.
Simon Gammon of Knight Frank Finance said: “Requests for bridging finance have gone up in recent months,”. Many companies are willing to lend to these customers so long as they can pass affordability tests. Potential applicants would need to be able to prove that they could afford to pay for the current mortgages as well as the bridging loan which is currently around 2-3% variable.
A spokeperson from a leading specialist mortgage website said: “This can save significant sums for the client, as interest rates from traditional bridging lenders are usually 1.25 per cent to 1.50 per cent per month and often have arrangement fees of 1 per cent and 2 per cent,”
A bridging loan is usually over a much shorter period, typically 12 months which tends to be enough for a home mover to sell their original home and use the funds to pay off the loan.
Private Bank Investec has reported a recent increase in demand for bridging loans. Wayne Preston of Investec said: It’s not really a seller’s market at the moment, We’re finding that a lot of people want to wait for the property market to improve before they sell their home.”
Whilst the overall housing market is in a bit of a slump, some experts are still reporting a high demand in desirable locations. Many areas are still seeing certain properties being bought quickly and even instances where buyers are paying well over the asking price.
In order to take advantage of the current market, many potential buyers are seeking pre-approaved credit in order to give themselves a competitive edge which may get them the deal that they are looking for.
A market analyst said: “If a buyer has a pre-agreed mortgage, this puts him in a strong negotiating position, “Combine this with the pre-agreed ability to ‘bridge’ if necessary and he will be able to exchange contracts quickly and secure the purchase,” he added.
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