This is currently the situation for a friend of ours, they are stuck in a chain of around 10 houses and the house they want to buy is getting offers every day and the seller is getting anxious.
So i did a little digging around on how they could purchase the house without having sold theirs, the answer, a bridging loan. www.greenfieldcapital.co.uk
Bridging Loans to help you move Home
After a little research I found this company and have put our friends in touch. I will let you know the outcome.
The Bridging Loan Article from Greenfield Capital :
It is natural to have your house on the market while you are searching for a new home. Sometimes you end up finding your dream home before your current home has been sold. If this is the case, it is likely that you do not have enough money to purchase your new home while you are still paying a mortgage on your old one. Lenders have recognised this and have created bridge loans.
Types of Bridging Loans
There are two types of bridge loans. A closed bridge loan is for home buyers whom have already done an exchange on the sale of their current home. These types of loans are considered lower risk and have a better chance of being approved. Am open bridge loan is for buyers that have not put their current home on the market yet. Lenders that offer open bridge loans will have lots of questions that you will need to have the right answers for. You will also need proof of your answers. In order to be approved for this type of loan, your current home will need to have lots of equity.
If you decide to bridge loans, your lender will want to see the mortgage offer on the new property along with the property’s details. They may also require you to provide proof that your current home is actively on the market along with proof on how you will meet the interest payments. You will also need an exit strategy in case the sale of your current home falls through. Most bridge loans have a 12 month limit, although you can usually renegotiate with your lender after the limit as long as you have been paying your interest payments on time.
When bridging loans, it is important to keep in mind that they have high interest rates that range between 2 and 2.5 percent. An arrangement fee ranging from 0.5 to 1.5 percent of the value of the loan will also be charged. Some bridged loans have a higher interest rate while some have a higher arrangement fee. Fast-paced lenders are available if you need to move to a new home quickly, but be prepared for much higher interest rates. When deciding whether to pay more in interest or more in arrangement fees, think about your circumstances. If you are confident in the sale of your current home, choose a lower arrangement fee but if you are not sure when your home will sell, choose a lower interest rate.
It is important to keep some things in mind when deciding whether or not to bridge loans. It is generally considered a last resort due to the expense involved, as the lendee will end up paying on two loans at once until the current home sells. Generally, you should only bridge loans if you know when you home is going to sell and you are certain it won’t take more than a couple of months. Many sales in the UK are currently falling through due to the market, so you should be certain that your home will sell and that you have good credit. Keep in mind that your lender may want to use both your current home and your new home as collateral, meaning you could lose both homes if you are unable to pay the bills and default. Bridging loans is a bad idea if you are simply struggling for a mortgage because many lenders are pulling deals and raising deposits.
Bridging Loan Alternatives
There are alternatives to bridging loans. You can try raising the money you need by using a standard no-fee mortgage. If you use a mortgage deal with no early repayment charges, you can clear the loan once your current home’s sale is complete. Standard no-fee mortgages have better interest rates, but you will need to prove that you can pay both mortgages. You can also re-mortgage your current home, which releases equity that you can use to pay the deposit on the mortgage for your new home. If the lender allows, you can convert your old mortgage into a buy-to-let. This means that you will rent out your old home and use the rental income to pay the mortgage on the old home. If you decide that acting as a landlord isn’t for you, you can sell your old home when your renter’s lease is up.
Understandably, not everyone can afford two mortgages and not everyone has the time or inclination to keep up with all of the laws regarding acting as a landlord. If the above options don’t work for you, contact your local lender about bridging your loans.
Greenfield Capital Bridging Loans : www.greenfieldcapital.co.uk/bridging-loans