Bridging Finance Popular Among Buyers Looking to Beat the Stamp Duty Deadline
When the temporary stamp duty holiday expires on March 31 (now forecast to end June 30th), home buyers could once again find themselves £15,000 out of pocket. With stamp duty currently suspended on qualifying properties under £500,000 in value, it is estimated that over 90% of all home purchases are covered under the temporary policy.
The timeframe is difficult to attain using a conventional mortgage to purchase a home in what is deemed as the traditional way. Subsequently, more homebuyers than ever before are turning to alternative funding solutions, such as bridging finance.
Often accessible within a matter of days, bridging loans open the door to rapid property purchases and the potential to make a £15,000 stamp duty saving. An opportunity the public is apparently taking advantage of, according to the latest data.
Last-Minute Property Purchases
As interest on a bridging loan is charged monthly, they are not typically used by the public for property purchases, however, the prospect of a £15,000 reduction in property purchase costs has encouraged many to consider all available options to beat the cut-off date.
With bridging finance, monthly interest can vary from less than a 0.5% to more than 1.5%. This makes bridging finance exceptionally affordable on a short-term basis, though less cost-effective when seen as a longer-term solution.
Using bridging finance to purchase a property involves arranging the facility with a specialist lender, in a similar way to any other secured loan. Security (aka collateral) must be offered in the form of qualifying assets of value, usually the current home of the borrower, or another property. The loan is quickly underwritten and issued, the property is purchased, and the balance is repaid in a matter of months. Repayment of a bridging loan typically occurs when the borrower’s current home is sold.
When bridging loans are repaid as quickly as possible, interest payable and overall borrowing costs can be highly competitive.
Of course, it is only advisable to use bridging finance to beat the stamp duty deadline if doing so leads to savings in excess of £15,000. If the total borrowing costs associated with a loan exceed this £15,000 threshold, it may not be cost-effective to go ahead.
This is where an online bridging calculator can help, by providing an immediate and informative overview of the approximate borrowing costs to expect. By entering the amount you intend to borrow, how quickly you intend to repay the loan and the approximate rate of interest, you can determine whether or not bridging finance is appropriate for your planned property purchase.