Bridging Loans Are Becoming Too High Risk
When most people move house, particularly if they are moving up the housing ladder, usually depends on the level of equity which they have built up in their existing home to assist them with the purchase of the new house.
If they have owned the property for a number of years it is quite possible that they will have a considerable amount of value locked up in their home and once it is sold, this will provide the necessary funds for a substantial deposit on the new property, meaning that they will not be forced to take out as large a mortgage or home loan.
In the recent past, when the housing market was strong and properties were selling quickly, if someone wanting to move had seen a new house which they wanted, but had not yet sold their own property, it was possible to take out a bridging loan to allow them to complete the transaction and avoid losing the house they wanted.
A bridging loan is offered by lenders, usually over a short period until the buyers old house is sold and is, quite simply a secured loan which uses the available equity in the old property as the security.
This type of loan is quite clearly very expensive, as the purchaser not only has to pay their original mortgage, but also the new home loan as well as the bridging loan, but the benefit of this has been that they have not had to pay this for long due to the speed with which their original property would be likely to be sold.
However, due to the current situation in the housing market, with property prices falling steadily and people becoming reluctant, or unable to buy, the housing market has slowed considerably and houses are taking much longer to sell.
Because of this, many experts are now saying that a bridging loan is now too high a risk, both for the borrower and the lender providing the loan and many lenders are withdrawing such products, or at least severely restricting the criteria as it would place too much risk on the lender and too much financial pressure and expense on the borrower.
The best course of action for someone wishing to move up the ladder is as it always was, to ensure that you have sold your old house before you commit to the new one.
