Bridging loans are being used by parents to help their children get on the property ladder
Traditionally it has been common place for first time buyers to receive some financial help from parents, grandparents or other family members when buying their first property. In the past this may have been some help with buying furniture, paying solicitor fees, helping to pay stamp duty or towards a small deposit.
Since the credit crunch many first time buyers have been receiving a lot more financial help from family members. The downturn in the economy, mainly caused by lenders being very short of funds, has resulted in much more stringent lending criteria for mortgages and other finance facilities. Consequently in order to get on the property ladder much larger deposits are required due to decreased loan to values being offered by the mortgage providers.
Typically first time buyers are required to find £20,000 to £30,000 in order to purchase a ‘basic’ property. This is a lot of money for a first time buyer to find, and many people looking to buy their first home are unable to find this. Consequently parents and their family members are helping out wherever possible, but with often having several children to help out, not many people have the sort of money required available. Family members, and in particular parents, who are keen to help, but don’t have any available funds, are finding other ways to help their children purchase their first property.
In order to get themselves onto the property ladder some first time buyers are purchasing properties that are in need of renovation and improvement. These properties are often unsuitable security in order to obtain a mortgage on due to them being uninhabitable. Therefore funds to purchase the property are provided by a family member who raises the required money through a bridging loan secured against their own property. Once purchased the plan is to restore and improve the property in order to increase its value whilst also returning it to a condition that will make it suitable security for mortgage purposes. Once completed the property is remortgaged using the funds raised to repay the family member who lent them the money, who in turn repays their bridging loan.
In these circumstances parents are making it possible for their children to get onto the property ladder by releasing money tied up in equity in their own property. By purchasing correctly and being prepared to do some work, increasing a property’s value can mean that the money provided can be repaid in full and within a short period of time. There is of course an element of risk, and before undertaking something like this you need to do thorough research and be prepared to do some work.