Open vs Closed Bridging | Understanding the Risk Difference

Every bridging loan in London is unique, and not all bridging loans are expensive or risky. An important factor is knowing the difference between the two types of bridging finance, open or close bridge, which may mean not all bridge loans are suitable for your circumstances.

Closed Bridging Finance

A closed bridging loan means that the Borrower has an existing, agreed exit strategy. For example, his vendor has agreed to settle on his existing property by way of an unconditional sale and purchase agreement, and that the settlement of that sale will occur after the date by which he must settle on a new property.

Here, the bridging facility is secured by a binding contract of sale with an agreed-upon date of repayment. Since there exists a tangible route of repayment, closed bridging finance is often deemed to be less risky.

Lenders, though, will still consider a range of issues before agreeing to a closed bridge. These can include the strength of the purchaser, whether the purchaser is an individual or a company, purchase price, deposit, GST issues, and contractual provisions that may affect the likelihood of the settlement occurring. All of these will impact the strength of the exit strategy.

Open Bridging Finance

Open bridging finance can be used where a sale agreement hasn't yet been agreed when the funding is set up. If the buyer needs to settle on a new purchase although the sale agreement isn't yet, there is no fixed date for repayment.

Hence, open bridging involves a greater exposure to risk for both parties. In the absence of a secure source of revenue, the lenders are required to perform a wider scrutiny process in order to assess the truthfulness of the possible exit plan.

Even though a higher risk, open bridging can work well for the right type of deal if it's set up correctly. If you think about most property transactions, we can often miss out on opportunities if we 'sit and wait' for our existing property to sell. The deciding factor is not whether a bridge is open or closed, but whether the lender is happy from a security vantage point, market place, sale strategy, client profile and repayment planning perspective.

What Lenders Look For

When appraising an open bridge, the lenders should have assurance that the exit strategy is viable and will be achieved. This will involve an appraisal of the suggested sales process, exit timescales, available market demand and value of the property.

Lender will also want to ensure that the borrower has sensible expectations of sale price and is willing to sell under prevailing market conditions. Large difference between vendor expectations of selling prices and market conditions can extend the timescale and heighten the risk of bridged finance.

Choosing the Right Bridging Solution

Either open or closed bridging can be an effective, realisable facility if used in the right context. Closed bridging is considered the lower risk form as repayment is secured by the downside contractual sale. The open bridging has more uncertainty as the exit is not yet obtained but can be a very effective and successful approach if supported by high security, a proven sales approach and clear plan of repayment.

Silver Oak Capital provides on and off bridge financing to suit the needs of specific borrowers and transactions.

How Relocation Loans Can Simplify Your Next Move

Moving house on paper looks like a simple enough task, but when it comes to the reality of timing, finances, and decision-making, it can be anything but. One of the most pressing conundrums facing the average property owner is whether to buy before selling or vice versa.

This is where transfer loans will be crucial. They are aimed to help smooth this transition when your move is not as easy as anticipated. They are useful in many situations and are an invaluable option to have at your disposal during the buying and selling process. Read on to find out a little bit more about these quotes.

Understanding Relocation Loans

A migration loan(or bridging loan or transition loan) is a short-term loan that is used by homeowners who are simultaneously buying and selling a home.

In a nutshell, it creates a short-term loan enabling you to buy a new property prior to selling your existing home. The loan is then repaid from the sale proceeds..

It sounds simple, but property markets are anything but predictable. A house can fly off the shelves one month and linger for weeks on end the next. Relocation loans offer some financial cushion.

Ideal for:those moving for work, families wanting a quick move up to a new and bigger house or people moving elsewhere in the UK where prices are changing rapidly.

Buying Before Selling: Benefits and Challenges

Buying a new home before you sell your existing one is a popular option for many homebuyers, and is seen as providing a comfort and security from the stress of finding a new property without the financial burden and worry of not having a house to move into. Of course, there are some downsides.

Advantages of Buying First

More Freedom to Choose the Right Home

Until you sell your current house, you're under less pressure to make a quick choice. It gives you the luxury to search for the best house you want, whether a particular location, layout, or school district.

A Smoother Moving Experience

By holding both homes for a time, a transition can be made at your convenience it can be made at your own speed, rather than trying to an even tighter deadline of storage and a temporary home.

Greater Negotiating Strength

Buyers who already have the financing in place, and have no plans to sell another property before the home purchase, are the type of buyers many sellers hope to see. Get a relocation loan and it may give you an advantage or at least make your negotiating position stronger.

Potential Drawbacks of Buying First

Overlapping Housing Expenses

You could have double the mortgage, two insurance policies, double the utility bills and maintenance costs for a time. Even a short overlap can cost a lot.

Exposure to Market Conditions

If it has taken you longer than expected to sell your current home, you may have to lower its asking price to get it sold. A relocation loan may give you a little time, but it can't assure you that your current home sells.

A Different Kind of Stress

Instead of stressing about finding a new place to live, all of the emphasis is on selling your existing property. Most people do not realize that the stress can become overwhelming.

For instance, a couple moving for a new job might buy in short order to obtain school intakes, only to find their current home languishing on the market during a slower winter market. It could work but the carry costs could be 100 percent higher.

Selling Before Buying: A More Predictable Approach?

Numerous financial advisors will suggest looking to sell first, as you'll be more sure about your budget and your equity. But this method also presents a few problems.

Advantages of Selling First

Greater Financial Clarity

Once your property has sold, you will know just how much equity you have available. This can help with budget planning and even mortgage approval.

Reduced Financial Risk

The benefit of first selling is that you do not have to carry both mortgages together.

A Stronger Position When Purchasing

Buyers that have sold their'home previously are perceived well by sellers since there are no other preconditions to complete the deal.

Potential Drawbacks of Selling First

Temporary Accommodation May Be Required

However, if you are unable to find the right property straight away there might be a need to stay in rented premises, have storage facilities or live with family on a temporary basis. These costs tend to accumulate rapidly.

Pressure to Purchase Quickly

By having parted with the property, many are eager to be in a position to purchase again, resulting in decisions being taken on short-term needs.

Risk of Market Differences

In a market that slowed down, but was still appreciating rapidly, you could find your buying power decreasing by the time you're ready to buy, and prices of the property you want could be climbing higher.

Selling first can be quite manageable in the balanced market, but in an intensely competitive market, the flexibility of buying first and selling later can be a pain for the buyers.

Final Thoughts

Changing home is probably not only about a property. It is most likely to occur alongside career changes or when combining a new baby, reducing the size of your properties or simply escaping to a new version of your life. As property timescales are seldom précis financial solutions like relocation loans are put in place to make that leap.

Relocation Loans are meant to assist when used judiciously. They can make a chaotic time much more manageable, but at the same time if not adequately planned for, can throw tremendous pressure on that particular financial period.

Whether you're uncertain about buying first or selling first, consulting experienced experts prior to listing your property or starting your search can be very informative.

At Silver Oak Capital, we assist homeowners analyze the two choices, offer options for relocation loans options, and help develop a plan based on their timeline and comfort with risk. If you are moving and want to talk through the options before making a significant change, call our mortgage experts today. There is no better first step than the right plan.