Downsizing – How to Get the Right Bridging Deal

Right Bridging Deal

Downsizing should, in theory, be easier than upgrading to a larger property. The aim is to buy a home that is smaller and has a lower market value than your current home, which should (again, in theory) make the transition fairly straightforward.

In reality, this rarely tends to be the case. Just as soon as you bring conventional lenders into the equation, the whole thing becomes disconcertingly complex.

Worse still, smaller properties with higher energy efficiency and lower utility consumption have skyrocketed in popularity over the past couple of years.  Even those who can comfortably afford larger homes are setting their sights on more compact properties, where every day upkeep does not cost the Earth.

This has resulted in surprisingly ferocious competition for smaller homes, which in the past would have been focused more on larger and more luxurious properties. The vast majority of mainstream buyers simply cannot afford to bid on larger homes these days, further boosting the smaller end of the sector. 

Factor in the six to 12 weeks it can take to process a mortgage application and you find yourself in a risky position. While waiting for your mortgage application to be processed, a competing bidder can (and probably will) beat you to the punch. Even though you are downsizing, the risk of a broken property chain is just as high as with any conventional home purchase. (anewcareer.org)

If not, considerably higher in today’s chaotic economic climate.

Bridging for Property Downsizing

This is where an affordable bridging loan could prove enormously helpful, for anyone looking to downsize. Bridging finance works differently from a conventional mortgage, in that it enables a borrower to quickly ‘unlock’ the equity they have tied up in their current property.

With Bridging finance, you can access up to 80% of the value of the home you own, enabling you to purchase your new (smaller) property outright for cash.  Importantly, these funds can be accessed within a few working days, meaning no reliance whatsoever on conventional property chains. It is you that benefits from the opportunity to beat competing bidders to the punch and to wrap up the entire transaction within a couple of weeks.

Bridging loans are short-term secured loans, repaid when the borrower’s former home sells for its full market value. In the meantime, interest accrues at a rate as low as 0.5%, making it much more affordable than any conventional mortgage.

How to Get the Best Deal on a Bridging Loan for Downsizing

Eligibility and affordability assessments for bridging finance are conducted on the basis of several key factors:

  1. The value of the assets used as security for the loan (i.e. your current home) 
  2. How much you need to borrow and the LTV of the loan you take out
  3. How quickly you are able to repay the loan to minimise interest charges 
  4. Your credit score and financial background at the time of your application
  5. The specifics of the terms and conditions you negotiate with your lender

This final point is of particular importance, as all bridging loans are issued as bespoke facilities. There is extensive scope for negotiation, which is where the input and support of an experienced broker can pay dividends.

Getting a good deal on a bridging loan for downsizing begins and ends with choosing the right broker who can both support your application and negotiate on your behalf. Your broker can also help minimise turnaround times, reducing the risk of being outbid by a competing buyer in the meantime. 

For more information on any of the above or to discuss bridging finance for property downsizing in more detail, you can call anytime for an obligation-free consultation.

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