With the UK property market still favouring buyers over sellers, an increasing number of borrowers are using bridging finance to help buy new homes. Sellers have found it difficult over the summer, as a series of indices have shown house price deflation in certain sectors of the property market (see article above) and increased mentions of ‘double dip’ recession have caused nervousness amongst buyers.

However, many homeowners need to move because of changes in their work location or to accommodate a growing family. If they cannot find a buyer for their existing property, they do have the option to use a large bridging loan – which provides them with the finance to buy a new property before they receive the sale proceeds on their existing home.

Mortgage brokers have seen requests for bridging finance on the increase, with private banks offering this type of property finance at broadly similar rates to a standard mortgage – about 3% for a variable rate – as long as the borrower can prove that they have enough income to support both the bridging loan and the mortgage on their existing property.

This can save clients significant sums, as interest rates from traditional bridging lenders are up to 1.5% per month and often have arrangement fees of 1% or 2.

The result has been a rise in the number of borrowers seeking pre-approved credit from lenders. (Some private banks will offer a pre-approved bridging facility for up to six months.) If a buyer has a pre-agreed mortgage, this puts him in a strong negotiating position. If this is combined with a pre-agreed ability to ‘bridge’ if necessary, then he can exchange contracts quickly and secure the purchase.

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