Bridging loan for retired couple?

Bridging loans are usually required where both the old and new properties need to be mortgaged. They charge a high interest rate because of the risk involved (old property might not sell as quickly as anticipated).

You don't need one of those because your savings plus equity exceed the cost of the new place. You want a normal mortgage for the new home, of perhaps £100k as you suggested. Go for one with no extended tie-in. This will make it possible to pay it off as soon as the proceeds from the old property become available.

Could be, if your pension income is inadequate to cover the borrowing, but you could always go for "non-status", given that you would be borrowing only a modest proportion of the purchase price.

In message , Ronald Raygun writes

?

In message , jj writes

'Open' bridging is expensive and dangerous. Most High Street lenders wont do them. They are dangerous because in their traditional form the interest rolls up and compounds and rapidly reduces the equity. If the property is slow selling (and the market is quiet at the moment) there is no way out but to reduce the price cutting into equity even further. I have direct experience of some people getting into very very hot water in the circumstances you describe.

If you have sufficient income, then a simple mortgage with no early redemption penalty on either property with you paying the interest monthly would very easy to arrange with almost any mortgage lender BUT for a loan of £100,000 you would need a pension income of about £25-28k per annum. The payments would be about £395 a month @ 4.75% (say).

Your age and 'status' are not problems, possibly just your income may be.

In his post Ronald mentions the option of a 'non status' mortgage. I would only consider this route if your are SURE that you can afford £395 for a long time (in case the property doesnt sell) and possibly more if interest rates go up.

If your pension income is not near the amount mentioned above then I would very very strongly counsel you NOT to attempt owning both properties at once. It will be become very stressful as time goes on and will more likely end in tears than otherwise.

You know what I mean. I simplified. ...where the owner has insufficient funds to be able to own one of the two properties outright, and where therefore the solution involves loans secured on both properties.

Where the aggregate of the loans involved does not exceed the borrower's ability to service the loans, as measured by typical mortgage lenders' lending criteria (income multiples, etc), a "normal" mortgage loan on one or other of the properties may be sufficient, or two normal mortgage loans secured one on each or both, or both on both can be used.

Where lending criteria would not support this type of scenario, a special high-risk high-cost loan would be used instead, probably also secured on at least one if not both properties, and this would be called a bridging loan.

The OP does not need one of those because he already owns the first house outright and has enough savings to buy more than half of the second.

"john boyle" wrote

That would only happen if the interest rate far exceeded the rate of house price inflation, wouldn't it?

For example, if (for instance) the interest rate were 6%pa, and the house value rose at 6%pa, then the equity would actually *also* rise by 6%pa!! [Putting numbers to it: if bridging loan starts at 100K and house is worth

250K, then loan rises to 106K (with interest) and house value rises to 265K -- both rising at 6%pa -- then the equity will rise from 150K to 159K...]

Another way to think about it: if bridging loan starts at 100K and house is initially worth 250K (equity = 150K), and the interest rate is as high as (say) 8%pa, then the equity remains the same even if house price inflation is only 3.2%pa !! [Loan / house rise to: 108K / 258K, leaving equity at 150K.]

In other words, for the equity to reduce "rapidly", if the interest rate is (say) 8%pa then house price inflation would have to be much below 3.2%pa...

In message , Tim writes

The problem is that if a house isnt selling its price is reduced, not increased, irrespective of the market movements as a whole. Some houses just wont sell! As the debt increases there is even more pressure to sell so the price is reduced further.

"john boyle" wrote

But that would be the case, whether or not there is any loan secured on the house...

It's therefore *not* the bridging loan that is causing "the equity to reduce rapidly" -- it's simply the reduction in price that does that!

But the reduction in price is fuelled by increasing pressure to sell caused by the growing bridging loan debt.

It may not be as disastrous as it could be. If the worst came to the worst they could always move back into the first house and sell the second, assuming the fact that it was more desirable for them means it's also more desirable for potential buyers out there.

In message , Tim writes

No. The borrowers anxiety and the knowledge of the rising debt makes them reduce the price at a greater rate than they would do otherwise.

What about the rising debt caused by the compounding interest? That eats into equity too.

In message , Ronald Raygun writes

But if their original house was also chosen by them (which I assume is the case) their taste could be seriously in question so they now have two lemons on the market.

All the prospective 'bridgers' I have known all slip into the phrase "well we will just sell it!" as though it would just happen. It doesnt work that way.

Another possibility would be to arrange a buy to let mortgae loan on your existing property to use as the deposit on your new property - I know you know it, but it would work out cheaper using the tried and tested method of selling your home and moving to the new home at the same time..........

Thanks very much to everyone for all the very useful advice. It has brought up things that we never considered and has given us a lot to think about. Our combined income is rather low, so we probably shouldn't be thinking about loans at all!

Perhaps what we'll do eventually, if we can, is sell our place and move into rented accommodation for a while, to give us a chance to look for a new property at leisure. We'll then have the advantage of being a cash buyer.

JJ

Bitstring , from the wonderful person jj said

That's probably the best option unless you found a place you love so much you are willing to gamble your financial security to get it (or unless the sellers of it are desperate enough to do a PX for your old property - some developers will do that, but only if you are trading =up=).