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How to buy your new home when you’ve still got to sell your own – Bridging Finance

With listings across the country at all-time lows, and the vast majority of properties selling being Auction campaigns, buying a new home can be pretty tricky when you’re also needing to sell your existing home as part of the process. The current listing stock is a bit of a double-edged sword, with a lot of people I talk to looking to sell their homes being somewhat fearful of selling first and not being able to find the suitable property in the time they have until settlement of their home.

So we’re going to take a look at some different ways in which you can look to buy a home when still needing to sell. We’re going to start off with taking a look at bridging finance, how it works, and how it may be something worth considering if you’re in this predicament like so many others I talk to on a weekly basis

Bridging finance can be a good way of being able to secure finance to purchase your new home, before selling your existing property, and if we can make it work, can mean that you are able to purchase without having to make offers conditional of the sale of your home (we will discuss this in the next instalment). So, with bridging finance, If we have sufficient equity and servicing, banks may be able to lend you the amount for the purchase, before the sale of your current home. There are certainly some hoops to jump through, and we have two variations of bridging, which is ‘Open’ & ‘Closed’ Bridging.

With Open bridging, this is where your existing home hasn’t sold unconditionally as yet, it may be on the market, under contract, or still yet to be listed for sale. With an Open bridge, as we don’t have a guaranteed sale, we need to show servicing ability for the total lending position, with banks taking the position of looking at the application as if your home doesn’t sell. So it can be fairly restrictive here, especially with main stream lenders, as if you have say a $300,000 home loan on your property, and you’re purchasing for $900,000, assuming you don’t have any additional cash deposit– we need to show the ability to manage a loan of $1,200,000. In addition to this, we also need to have sufficient equity to have security against both properties, the combination of both these factors can be limiting to a lot of homeowners. There are a range of options outside of main stream banks that may offer good solutions here if a bank is unable to support, however will likely come with a higher interest rate than that of a main stream bank. The downside is the cost, in that if you’re purchasing the property before the sale of your home, you will have a home loan across both properties, and those loans will have repayments. So, in the scenario above, you would have repayments over the total $1.2m in lending until your property sells and settles. Understanding the additional costs of owning two homes, even for a short period is vitally important, and having access to funds to help with the additional payments whilst you own two properties can make life a lot easier. It is easy to get caught up here in the assumption that your property will sell easily & quickly, however we need to make sure that we have contingencies in place for a longer sale of your home, or a less than expected sale price.

With closed bridging, this becomes a lot more straight forward, and something most banks are happy to look to support. With a closed bridge, your home has sold unconditionally, but the property you are purchasing settles after the settlement of your home. So if you sell your home, have a settlement date of say 60 days, but have purchased a home that settles in 30 days, you would be in the position of a closed bridge, where we are borrowing across both properties for the period of 30 days. As the sale is unconditional, and we have set dates, sale & purchase prices, we can fully assess the end position, and provide comfort to both you & the bank of your end position once both settlements occur. If we can support the end position, and have sufficient equity, most lenders are open to supporting a closed bridging scenario, as your total position can be assessed to make sure the lending is suitable.

There are a lot of intricacies that need to be looked at & understood when looking at bridging finance, and this is just a brief overview for understanding how it works. Bridging finance can be a great tool if you are facing this kind of predicament, so feel free to get in touch at any time to talk through your individual position so we can give you the right advice to get you into your new home.

The content of this post if for general information only, and does not constitute regulated financial advice for retail clients. Whilst every care has been taken to supply accurate information, errors & omissions may occur. Accordingly, Square One Home Loans (FSP775153)or any of its directors, contractors, consultants or employees accept no responsibility for any loss caused as a result of any person relying on the information supplied in this video. For financial advice to your personal situation, please reach out by contacting Joshua Martin (FSP581987).