Our clients – a retired couple running a holiday lettings business – came to us looking for a way to purchase a second property into which they planned to downsize once their main residence and holiday lettings business had been sold. The issue they were facing, however, was that they had been unable to sell their current main residence – a £1.3m farmhouse with five lettable units – and were therefore in need of a loan with which to fund their onward purchase. Their plan was to let out this second property until their main residence had been sold, at which time they would then move into their new property and repay the mortgage with the cash generated from the sale.
This case presented a number of complications. Firstly, the property our clients were looking to purchase was a grade 2 listed building needing considerable work in order to be lettable. Before our clients were able to secure a buy-to-let mortgage, therefore, they needed to make substantial renovations to the property, but in order to do this, they needed a loan. The property they were looking to purchase was worth £630,000, and they had £320,000 in savings, meaning they required a loan of £310,000 in order to fund both the purchase and the renovations.
In addition to this complication, our clients required a short-term loan that could be repaid once their main residence had been sold. Many mortgages come with early repayment charges which strongly discourage borrowers from repaying the loan before it’s initial period is over. We therefore needed to find our clients a loan that came with no such charges. And then finally, as retirees, our clients’ incomes were severely limited, considerably reducing the size of the mortgage that most lenders would have been willing to offer them. We therefore needed to locate a lender that was willing to offer them the full amount they required despite such income limitations.
Our broker initially looked through the market for a traditional mortgage which would have been secured against our client’s new main residence. He soon recognised, however, that bridging finance presented the only viable solution to our clients’ problem, because it allowed our clients to borrow the amount they required on a short-term basis while rolling up their interest payments. This meant that they could repay the loan once their main residence had been sold without incurring any early repayment charges. Moreover, arranging a loan with rolled-up interest payments meant that our clients’ limited combined income did not restrict the amount they were able to borrow, because the interest payments were to be rolled up into the total value of the loan and paid at the end of the loan’s term, rather than on a monthly basis.
We were eventually able to arrange a 12-month bridging loan worth £360,000. The loan came with a monthly rate of 0.59% and rolled up interest payments. Additionally, whereas many bridging lenders require security against both the existing main residence and the onward purchase, the lender we eventually selected only required security against our clients’ main residence, allowing them to minimise the legal and valuation costs associated with the purchase.