"Bridging can give them a competitive advantage over other perspective buyers, as taking a bridging loan can put them in the position of a cash buyer while they market their home."
The cost-of-living crisis and rising interest rates have forced most households to reassess their plans and one of the trends we have seen as a result of this is a growing number of clients who are looking at downsizing their property.
According to a survey before Covid, in 2019, more than two thirds of home owners aged over 65 in England had at least two spare bedrooms, but only 2% expected to move in the next six months.
In a low interest rate environment, there has been little incentive for homeowners to consider moving to a smaller property once their children have left home, as mortgage payments have been manageable and the emotional upheaval has not been worth the ongoing costs of staying in a property larger than their current requirements.
However, with rates rising significantly in the last nine months, not to mention the increased cost of heating and electricity, the balance is shifting. Many home owners have seen the increased outlay required to maintain their mortgage when they come to remortgage and have decided that the benefits of staying put no longer outweigh the benefits of downsizing.
The property market may have slowed in recent months, but vendors remain in a strong position as the number of properties coming to market has reduced, with many people holding off selling for the time being.
For those home owners who have taken the decision to downsize, bridging can give them a competitive advantage over other perspective buyers, as taking a bridging loan can put them in the position of a cash buyer while they market their home. This could help them to secure the property they want and could even enable them to negotiate a better price.
On the other side of the transaction, using a bridging loan to secure a purchase can give downsizers longer to market their property, and without as much pressure on timing they could hold out for more money on the property they are selling.
There are considerations for home movers taking this route. By simultaneously owning two properties, additional stamp duty is payable upon purchase of a second property. This can be claimed back once a buyer is able to sell their current property, but they will need to have these funds available to pay the increased stamp duty. A bridging loan could additionally be used to secure funds for these costs if the amount of equity available across the properties permit.
The costs of a bridging loan are obviously also a consideration, but they could be offset by the extra money saved or made from the property transaction. A homebuyer who has taken a bridging loan rather than waiting to sell their property should also have a better opportunity to move into their new home at their leisure following completion. This allows time for any additional works to be completed prior to taking occupation and avoids that highly stressful moment on moving day when they have to juggle the completion of a sale and a purchase and not knowing when they will get the keys for their new home.
Downsizing is a trend we are likely to see increasing in the coming months as more homeowners realise the increased cost of remortgaging to a higher rate, and bridging could be a tool that helps to make this process more straight forward.
