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This is used when a new purchase needs to be made before the sale of an existing property, or when additional monies need to be released from owned properties, to fund another purchase. This provides an opportunity to avoid traditional bridging facilities, which are expensive in both interest costs and fees.
Case Study
Mr & Mrs B wish to buy a new build property for £750,000 discounted from an original value of £795,000. Purchase done before the sale of their existing property at £500,000 with a mortgage of £300,000.
Costs of moving and legal fees (inc. stamp duty) can be met from savings, but the “deposit” for the new purchase is the equity in the existing house.
The lender agrees to take a legal charge over both properties as security to repay the existing mortgage and increase the borrowings to the maximum loan to value by cross collateral charging. At the same time they agree a higher loan size on the new purchase. Income is only at a sufficient level to cover the proposed mortgage level once sold, but a realistic view is taken by the lender in the short term.
Result, a mortgage on the new purchase of £636,000 (80% of value) plus raised amount of £400,000 on existing property. The extra £100,000 from equity provides all but £14,000 of the £114,000 needed as “deposit” in the short term. The remainder, as well as the associated costs, is covered by savings .
Borrowings are set up on interest only basis and on residential mortgage terms, with no penalties for flexibility. Once the existing property is sold, the mortgage on this is repaid and the equity used to reduce the continuing mortgage, on the new home.
Note - Savings can be replenished from equity on the sale, before reducing the remaining mortgage to the relevant level.
THIS CASE STUDY AND SOLUTION ARE FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS ADVICE.
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“Excellent that the offer is now received, many thanks for your efforts, life-saving as usual. Anyway, for the present thanks a million to you all for your tireless work on my behalf.”
Mr I W, Cornwall
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