Its a common problem. You need to downsize but don’t want to move from your home until you have found a new one. You see the perfect property but it needs to be a quick purchase and your home isn’t even on the market yet.
There are two main problems you face with this scenario, first you must sell your existing property within an short period of time in order to release funds for the purchase, which can mean that you are desperate to sell quickly so take a reduced price. Second, the vendor of your new purchase is likely to know that you need to sell so is less likely to accept your bid than a cash purchaser, or is less likely to give you a good price.
The solution is to arrange short term finance. In the past this has been an extremely expensive route to follow and, justifiably, most have tried to avoid it. Standard ‘Bridging finance’ rates have been in the 15 to 20% range which is less than attractive.
There is an alternative however. Private banks have strong interests in looking after wealth, and offer advice in the fields of Inheritance tax planning, investments and general wealth management. They also offer credit facilities. If a client is downsizing then there is usually a portion of equity released from the existing property and the private bank is happy to provide short term finance if the client will consider putting these funds with them post sale.
This can be a win win situation for both parties. The borrower who is downsizing achieves a very cheap form of short term finance that enables them to take their time in accepting the right offer for their property, and also gives them the assurance that they can complete their purchase. The Private Bank gains a client who has some equity to place with them and may also require their wealth management services or Inheritance tax planning advice.
If the client does get the right price for their property very quickly, and manages to complete simultaneously with the purchase, then the only cost has been the cost of a valuation and perhaps a small charge for setting up the facility.
In the above scenario, we are currently achieving rates in the region of 3% per annum with a 1% arrangement fee and no redemption penalties. As you may imagine it only takes a small increase in the value of an offer accepted on a property or a discount on the purchase to cover this cost, particularly if the finance period is only a few months or less.