Need to Buy Before You Sell? There Could Be an Alternative to a Bridging Loan

If you've found the perfect new home but haven't yet sold your existing property, you could find yourself in a difficult position.

You don't want to lose the property you've found, but you may need the money tied up in your current home to fund the purchase.

A bridging loan is often the first solution people think of in this situation.

However, bridging finance isn't always the only option.

Depending on your circumstances, a short-term residential mortgage could potentially allow you to purchase your new home before selling your existing property – giving you more time and potentially reducing the pressure to achieve a quick sale.

Why Would You Need to Buy Before Selling?

There are many situations where someone might want to secure their next home before their current property has sold.

One of the most common is downsizing.

You may have spent years waiting for the right bungalow or smaller property to become available in a particular area. When it finally comes onto the market, waiting until your own property has sold could mean losing it to another buyer.

Other situations might include:

• Finding a particularly rare or desirable property

• Moving closer to family

• Relocating to a different area

• Buying a property that needs to complete quickly

• Wanting time to prepare your existing home for sale

• Avoiding a complicated property chain

• Not wanting to accept a low offer simply to achieve a quick sale

In these situations, short-term mortgage lending could potentially provide another solution.

What Is a Short-Term Mortgage?

A short-term mortgage can potentially provide the money required to purchase your new home while you still own your existing property.

You can then sell your existing home separately and use the proceeds to repay the mortgage.

This can effectively separate the purchase of your new home from the sale of your existing property.

Rather than trying to coordinate two transactions simultaneously, you could potentially secure the property you want first and then concentrate on selling your existing home afterwards.

A Real Example of How It Can Work

Furness Building Society provides a useful real-life example of this type of lending.

Their customer, Anne, was 77 and had lived in her four-bedroom detached family home for around 40 years.

Following the death of her husband, she decided the property was too large and wanted to downsize while remaining close to her family and within the same village.

A suitable bungalow became available nearby.

The problem was that there were very few bungalows in the area and the property was attracting significant interest.

At the same time, Anne's existing home wasn't yet ready to go onto the market.

Waiting for her house to sell could have meant losing the bungalow.

Could a Bridging Loan Have Worked?

Potentially, yes.

Bridging finance is specifically designed for circumstances where money is required for a relatively short period.

However, Anne was concerned that using bridging finance could put pressure on her to sell her existing property quickly.

Having not had a mortgage for around 20 years, she wanted more time and flexibility.

Her mortgage broker therefore approached Furness Building Society to explore an alternative.

The Alternative: A Short-Term Residential Mortgage

Furness was able to provide the money Anne needed to purchase the bungalow through a short-term mortgage.

The borrowing represented no more than 60% of the property's value, and the mortgage was arranged on a two-year product.

This gave Anne the ability to purchase the bungalow without first completing the sale of her existing home.

She could move into her new property and then take the time needed to carry out some work on her previous home before putting it onto the market.

Rather than dealing with the purchase, sale and move simultaneously, the two transactions could be handled separately.

Why Could This Be Better Than Bridging?

There isn't one solution that's right for everyone.

Bridging finance can be extremely useful and appropriate in the right circumstances.

However, a short-term residential mortgage could potentially offer an alternative for certain borrowers.

The biggest advantage can simply be time.

If you don't need to sell your existing property immediately, you may have more time to prepare it properly for sale, find the right buyer and avoid feeling pressured into accepting an offer simply because another loan needs to be repaid quickly.

It can also remove you from a property chain.

Being able to proceed with your purchase without waiting for your existing property to sell could potentially make you a more attractive buyer when negotiating on your next home.

Could This Work for Downsizers?

This type of mortgage can be particularly interesting for older homeowners looking to downsize.

You may own a property with a substantial amount of equity but have a relatively modest income compared with the property's value.

For example, someone might own a £600,000 home with little or no mortgage and want to purchase a £350,000 bungalow.

The issue isn't necessarily a lack of wealth – it's that much of their money is currently tied up in their existing property.

Specialist lenders may be prepared to look at the wider circumstances and consider how the mortgage will ultimately be repaid following the sale of the existing home.

What About Your Age?

Being an older borrower doesn't automatically mean that obtaining a mortgage isn't possible.

Different lenders have very different criteria regarding maximum ages, mortgage terms, income and repayment strategies.

This is another area where speaking to a mortgage broker can be particularly valuable.

Rather than assuming you're too old to obtain a mortgage, we can look at your circumstances and establish which lenders may be willing to consider the application.

Do I Need a Large Amount of Equity?

The amount of equity available is likely to be an important part of the assessment.

In the Furness example, the mortgage required to purchase the new property represented no more than 60% Loan to Value (LTV).

Lower LTV borrowing can give lenders greater security and may open up mortgage options that wouldn't necessarily be available with a smaller amount of equity.

However, every situation is different and lenders will still need to assess affordability, the property, your circumstances and how the mortgage will ultimately be repaid.

What Happens When My Existing House Sells?

The intention would normally be to use some or all of the proceeds from the sale of your existing property to repay the short-term mortgage.

It's therefore important to understand any early repayment charges or other costs associated with the mortgage before proceeding.

A mortgage broker can compare the costs and conditions of the available options and help you understand how these compare with alternatives such as bridging finance.

Found Your Next Home but Haven't Sold Yours?

Don't automatically assume that you have to choose between losing the property or taking out a bridging loan.

There may be another option.

Depending on your equity, income, age and circumstances, a short-term residential mortgage could potentially allow you to purchase your next home before selling your current one.

This can be particularly useful for downsizers and homeowners who have significant equity tied up in their existing property.

Short-Term Mortgage Advice in Chester

At Mortgage Support Chester, we can look at your circumstances and explore the different ways of funding your next property purchase.

If you've found the home you want but haven't yet sold your existing property, we can compare traditional mortgages, specialist short-term lending and bridging finance to establish which options may be available and appropriate.

Found the perfect property but still waiting to sell your current home? Speak to Mortgage Support Chester and let us explore your options.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Mortgage availability and lending criteria are subject to change. Short-term mortgages and bridging finance have different costs, risks and lending requirements. Advice should be based on your individual circumstances.