I am a 71-year-old, owner-occupier widow. I am sitting on a large Victorian house that I own outright and have decided to move.
I want to find a smaller, alternative property, refurbish it to my needs and then sell my existing house. I have enough cash to refurbish an alternative property but not to buy one. How do I lay my hands on a short-term (maybe six-month) loan, which is roughly equivalent to half the equity in my current property, in order to make my plans work?
So far I have been met with a polite “it’s not possible since the mortgage rules changed last year”, or an offer at a truly exorbitant cost not only to set up but also to repay.
It sounds like the person who gave you such a disappointing response worked for a mainstream mortgage lender, rather than the type of lender that specialises in short-term bridging-type finance defined as secured loans with a term of 12 months or less. You can find such short-term lenders on the “members” page of the Association of Short Term Lenders . However, not all of these specialist lenders deal direct with members of the public so you may need to go through a broker to arrange a loan. Some lenders provide a facility of their websites to put you in touch with the kind of adviser you need.
Any short-term loan you manage to organize isn’t going to be cheap. As well as having to pay for a valuation of your property because it is going to be used as security for the loan, there will be other fees on top of the interest on the loan itself. Depending on the size of the loan in relation to the value of the property – the loan-to-value (LTV) – you can expect to pay interest of 0.85% a month on a LTV of up to 65% but more like 1% a month on a LTV above 70%. Because they are quoted as a monthly rate, those figures may seem low, but translated into a yearly cost, they are around three – if not four – times typical rates on a conventional mortgage.
What you don’t need to worry about is your age or even having to provide proof of income. What is of interest to a short-term lender is how you are going to repay the loan, which in your case is extremely clear as you will fund the repayment of the loan by selling your current property. If there’s the option to roll up interest – that is, to have it added to the loan, rather than paying it each month – you don’t need to worry about proving your income. This is because the lender will be happy that the interest bill will be met with the sale proceeds from your current house.
The alternative to taking out bridging finance would be to sell up and rent somewhere while you then buy and have the work done on your new home. If the rent (and possibly storage costs) would be about the same as the cost of taking out a loan, you might decide that the hassle of moving into a rental property and then again into a property of your own just isn’t worth it.