Real estate ownership is a great way to prepare for the future, and many people build up as much equity as possible in their property throughout their lives. However, a home that is ideal for a growing family can be a financial burden later in life, and in some cases, some may decide that they prefer a smaller and more manageable home.
Opting for a smaller property helps keep costs down. Furthermore, it can provide a pot of retirement savings for older individuals as the equity in their old property is released as liquid assets.
What is a Downsizing Bridging Loan?
A downsizing bridging loan is a significant tool that ensures the process of releasing equity from a bigger home is completed as efficiently as possible. It is a short-term secured loan that allows homeowners to purchase a smaller property before they sell their current home. The bridging loan is usually secured against the existing property and then repaid from the proceeds of its sale once it is completed.
What Lenders Assess for a Downsizing Finance Situation
Bridging loan lenders carry out a full assessment, even for cases that may appear straightforward. In a downsizing property scenario, the evaluation focuses on three key areas:
The Existing Property’s Asking Price
Since the exit plan for this loan is dependent on the sale of the current home, lenders usually pay close attention to whether the intended asking price is a realistic amount. A lender commissions an independent valuation of the current property to see if the valuation is below the asking price. The surveyor also comments on various factors that can slow down or affect a sale, which will form part of the underwriting assessment.
Combined Loan-to-Value
Lenders calculate a combined loan-to-value, or the total secured borrowing, expressed as a percentage of the assets’ total value used as security. For many downsizing bridging loan borrowers with significant equity in their long-owned home, the loan-to-value position is typically comfortably within normal limits. The calculation can change if there is an outstanding mortgage on the existing property, which is why it is vital to be clear about the full picture at the beginning.
Exit Plan in Plain Terms
The existing plan for a downsizing bridging loan is a property sale, which is a straightforward exit that a bridging lender can assess. What makes it credible is not the intention to sell the property, but the realism behind the selling plan. Lenders want to know the likely asking price and how it can relate to comparable evidence, the expected marketing period based on current market conditions, the property’s condition, and any work required before it can be sold. Moreover, lenders also want to understand if there are any title or legal complications that can delay or affect a sale.
Being honest and specific regarding the different factors in the exit plan can produce a stronger bridging loan application. A lender who can see that the asking price of the property is supported with comparison and a marketing timeline allows for a more reasonable variation.
Explore Downsizing Bridging Loans at Rapid Bridging Today
If you are looking to move quickly when the right opportunity appears for downsizing, speak with Rapid Bridging before you start your search. Rapid Bridging can help you explore suitable financing solutions and understand the funding available for time-sensitive property purchases, providing greater confidence when competing for properties with discounted prices.
Visit their website at https://www.rapidbridging.com for more information about downsizing bridging loans.
