Traditionally, regulated bridging has been used by home movers whose own sale has fallen through where they do not want to lose the property they are buying, with the funds used to secure the purchase while they await the proceeds from their current home.
Increasingly, in a market where vendors have maintained a strong position due to the lack of supply of property for sale, home movers have used bridging as a way of gaining a competitive advantage over other perspective buyers, taking a bridging loan to put them in the position of a cash buyer while they market their home.
One trend that we are seeing more and more is a slight variation on this, with bridging being used by downsizers. In a low interest rate environment, there has been little incentive for homeowners to consider moving to a smaller property once their children have left home, as mortgage payments have been manageable and the emotional upheaval has not been worth the ongoing costs of staying in a property larger than their current requirements.
However, with rates rising significantly in the las nine months, not to mention the increased cost of heating and electricity, the balance is shifting. Many home owners have seen the increased outlay required to maintain their mortgage when they come to remortgage and have decided that the benefits of staying put no longer outweigh the benefits of downsizing.
So, how can bridging help?
Just as bridging can put home movers travelling up the ladder in a stronger buying position, it can do the same for downsizers looking for a smaller property. And, as the cost of the new purchase is likely to be more than covered by the revenue from the previous sale, there can be greater confidence in covering the cost of the bridging loan.
Taking this approach, may even save downsizers money in the long run if they are able to negotiate a better price on the property they are buying given their stronger position, or hold out for more on the property they are selling.
There are considerations for home movers taking this route. By simultaneously owning 2 properties, additional Stamp Duty is payable upon purchase of a second property. This can be claimed back once a buyer is able to sell their current property, but they will need to have these funds available to pay the increased Stamp Duty. A bridging loan could additionally be used to secure funds for these costs if the amount of equity available across the properties permit.
However, there are also additional advantages. A homebuyer who has taken a bridging loan rather than waiting to sell their property could even get to move into their new home at their leisure following completion. This allows time for any additional works to be completed prior to taking occupation and avoids that highly stressful moment on moving day when they have to juggle the completion of a sale and a purchase and not knowing when they will get the keys for their new home.
Downsizing is a trend we are likely to see increasing in the coming months as more homeowners realise the increased cost of remortgaging to a higher rate, and bridging could be a tool that helps to make this process more straight forward.
Jo Powell, Bridging & Development Finance Specialist at Brightstar Financial