Why is a bridging loan necessary?
The example mentioned again in more detail: A family lives in a village in their own house. It will be too small, but a new house can be found quickly. And in the same place too! Now everything has to go very quickly so that the new object can be saved. The problem is that a large amount is required as equity. This, in turn, cannot be raised because it is in the property that has been inhabited up to now. It can take weeks or months until this is sold.
What helps is a bridging loan. The Lombard loan can be taken out, for example, if cash, collateral or securities are available and can be used. The terms of a Lombard loan are usually negotiable. Some banks even read to themselves and top up an existing mortgage. This is also a bridging loan. This is usually only possible if the existing property has already largely been paid off and if it has perhaps increased in value in the meantime.
The property serves as security
In principle, it is possible for a property to be used as security for a loan for another property. The bank will always ask for a mortgage note for the first property. This mortgage certificate must be ordered from the land registry. Important: If the existing mortgage is to be topped up, the applicant's financial situation must be examined again. Just because his creditworthiness has once been rated as good does not necessarily have to apply when topping up the mortgage.
In order to achieve this goal, a clever negotiation with the bank is necessary, although not all banks are eligible for a bridging loan. Some are rather skeptical about the wish for an increase and do not allow over-lending. It is therefore always important to prepare the documents that are required for a loan well so that the conversation with the bank can go as desired. In some cases, the borrower must then also undertake to sell the first property within a fixed period.
According to the banks, it is not so rare for one property to be taken as security for a bridging loan. The reason: If a property has to be sold first so that the next one can be paid down, there is a time gap that cannot be filled easily.
It becomes just as complicated when older people (60+) are looking for a new house that meets the requirements of age-appropriate living. In this case, they also need a bridging loan. However, experts estimate that around 40 to 50 percent of property purchases fail because the bridging loan has not been approved or because there are problems with it.
Tips on bridging loans
The time between the decision for a new property and the necessary financial clarification is nerve-wracking. The following tips will help protect your nerves:
- Good preparation
The better prepared someone goes into negotiations with the bank, the easier it will be to talk about a bridging loan.
- Meet deadlines
Necessary deadlines must be met, but borrowers should avoid going into long deadlines with a bridging loan. For the bank, the bridging loan is a normal mortgage and should be treated as such.
- Fair interest
The bridging loan is designed individually, but it may not be granted at horrendous interest rates. Be sure to compare with other loan offers!
Conclusion: The bridging loan makes dream homes come true
But that only applies if it can be concluded on the best terms. Otherwise, the only winner is the bank, which enjoys high interest rates and the security of the old property. It is important to reflect carefully on your own situation and to look for ways to keep the bridging loan as low as possible. It is also possible to top up the current mortgage in order to use the bridging loan to buy the new property. In addition, nobody should get involved in unfavorable conditions with a bank, nobody is tied to their previous bank for a bridging loan.
