Everyone wants to sell property quickly, and things are no different at the top of the market. Homeowners or property investors want to get the transaction out of the way as soon as possible, allowing them to dispose of property and move onto other projects.
So, speed is always of the essence when it comes to disposing of prime property. But what happens if your client can’t sell their property fast enough? Things can become urgent – and stressful – if your client is faced with a situation when a lender won’t extend a mortgage.
When Lender’s Don’t Extend a Mortgage
Lenders regularly decide not to extend mortgages, especially in the current market.
Sometimes, borrowers expect lenders will grant them an extension and are surprised when their request is denied. In other cases, a borrower will have known a mortgage wouldn’t be extended, but it was impossible to sell the property in the timeframe expected. This is particularly common if there is a prospective buyer, but there is lengthy solicitor involvement, or it’s taking a long time for a home loan to be approved by a lender, which would effectively see the transaction move forward. Even minor legal wrangles or questions from lenders will have a knock-on effect on how quickly the transaction can be completed, which will make things complicated for a seller if they’re in a race against the clock to wrap up the transaction.
It’s imperative that your client isn’t backed into a corner with few options if a lender won’t extend a mortgage. Selling the property at a knocked-down price is a solution, but it’s not advantageous for your client, who can potentially end up losing money.
Slashing the price of a property is rarely the easy solution it seems. Prime property doesn’t lend itself to dropping a few thousand off the price to make it more marketable to the masses: a £2.4 million property that’s reduced by a solid £500,000 will still be on the market for £1.9 million. A price reduction might make the property marginally more accessible to more buyers, but not necessarily by much and certainly not to the mass market. In other words, as well as not maximising their investment, cutting the price to secure a buyer may well take more time than your client has before their mortgage runs out.
It’s also worth noting that if your client is in a race against time to come up with a solution before the mortgage expires, reducing the price alone won’t be enough. With most buyers understanding the benefits of a home loan vs cash purchases, most will opt to borrow to buy property rather than purchasing in cash. As a result, your client will still need to wait until the transaction is completed, which, again, might see them go over the deadline for the mortgage repayment.
Bridging Finance When a Current Lender Won’t Extend a Mortgage
Bridging finance provides an ideal solution when a lender won’t extend a mortgage, but your client needs more time to sell the property. Given prime property sales are usually a question of ‘when’ rather than ‘if’, bridging finance simply provides a way to create the time needed to sell a property.
Using the proceeds of a bridging loan, your client can pay off the remainder of the mortgage, effectively meeting their commitments to that lender. A bridging loan can usually be arranged in 1-2 weeks (and in just a few days if required), meaning your client will be able to meet the deadline for repaying the original home loan that won’t be extended.
Bridging finance can last from a matter of weeks up to around 24 months – ample time to market and sell a property. The loan duration will depend on your client and their situation: if they have a solid buyer lined up who is simply waiting for a loan to be approved, borrowing for a few weeks or months might be ideal. If a home needs to be put on the market, it will make sense to borrow for longer – perhaps 12 or 24 months.
In these situations, Tenn will usually offer what’s known as an open bridging loan. While the loan will need to be repaid by a certain date at the latest, open bridging loans provide flexibility into exactly when that will happen. Given the loan repayment will be dependent on the sale of the property in question, this system gives borrowers the ability to pay back the loan as soon as the house sale is completed, rather than stipulating a precise repayment date.
At a Glance: Advantages
Bridging provides several advantages if a lender doesn’t extend a mortgage. These include:
- The property owner isn’t forced to reduce the price of the property in the hopes of making a quick sale. The owner also doesn’t need to rely on finding or accepting an offer from a cash buyer to meet the deadline for their mortgage repayment
- Bridging finance can be arranged fast. This is particularly useful if the borrower’s decision not to extend the mortgage is unexpected, if a property sale fell through, or if it is taking longer to sell a property than anticipated
- An easy exit route: the bridging loan is repaid from the proceeds of the house sale, which is often a straightforward and easy solution for borrowers
- Peace of mind. A lender not granting an extension on a mortgage can be highly stressful, given there are potentially severe financial, personal, and reputational repercussions if your client defaults on the mortgage. Bridging finance provides an easy and workable solution.
Talk to Tenn
If you or a client is faced with a lender that won’t extend their mortgage, drop us a note. We’re happy to discuss potential scenarios and explain how bridging finance could work