How do we buy a house worth more than the one we are selling?

8 April 2013

Q

We recently paid off our RBS mortgage and are now in the process of selling our house. We are 56 and 54 and have found a bungalow we would like to buy. The house we live in is up for sale for £183,500 and the new bungalow would cost us £200,000.We would like to buy the bungalow, but are not sure when or if our house will sell. What is the best option available to us? My husband's income is £9,000 a month.
From
PB/Barnsley

A

You should be able to secure a standard mainstream mortgage against the property you are buying that will become your main residence. You have no shortage of income to support a new mortgage, but the options on offer to you will depend on the level of deposit you can put down on the bungalow.

The bigger the deposit you have, the better the choice and rates on offer. However, you need to build in some flexibility to enable you to adapt the ongoing mortgage to your changing circumstances.

Once the sale of the current property goes through, you will presumably be in a position to clear a large proportion of the outstanding mortgage, so you should look for a deal that will not charge you for early repayment.

Get help finding the best mortgage for you

Bridging loan

Bridging can be an effective solution where there is an urgent short-term need for funds. However, a bridging loan will be more expensive than a standard mortgage deal and could become very costly if you don't have a defined exit plan or repayment timeframe.

It is possible to borrow beyond the normal retirement age, but you will need to demonstrate that the mortgage will remain affordable in retirement. There are now more age limits for mortgage borrowers. Many lenders will cap at age 75.

What is a bridging loan?

A bridging loan is short-term secured borrowing designed to ‘bridge' a temporary cash shortfall when buying property. This usually arises when someone is trying to buy their next home before the sale of their existing property has been completed.

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But it is also used by people buying property in a poor state that needs a lot of work done to it before it can be lived in and secure a mortgage. It is also used by those buying property at auction.

The loans can last from a few days to a year, but typically they are taken out over a few months. You pay interest every month at a rate that usually works out to be far higher annually than a standard mortgage. This is why they should only be taken out as a last resort.