Is a bridging loan suitable for a long delayed house purchase?

Q I want to move house into something that costs a lot less than the value of our current home. In theory it should be simple, but it’s not. I don’t want to move until after my son has completed his A-levels in June 2013, but the house we want to buy is on the market now. I would like to exchange now with a long delay before completion.

As all my money is tied up in our current house how do I go about putting the 10% down for the deposit? I don’t want to remortgage as I have an incredible interest rate. What about a bridging loan? Or, and I’m loathe to do this, will I have to resort to borrowing from relatives? CB

A You could be doing your relatives a favour by borrowing from them. If you offered to pay them interest of at least 3.5%, they would get a better rate than they could get from a normal savings account. It would also cost you a lot less than a bridging loan, for which you could expect to be charged 15% a year in interest.

Assuming your current home is worth at least the amount you need as a deposit more than your current mortgage, you shouldn’t discount increasing your current loan as it wouldn’t necessarily mean switching lenders or losing your current rate. Your lender may be prepared to let you keep your current mortgage deal but charge you a different rate on the increase – and it would still be a lot cheaper than taking out a bridging loan.

Virginia Wallis

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