Clever with money

Our new columnist, Ellen Roome, specialises in financing the upper quartile marketplace

"My sale just fell through for the second time and whilst there’s thankfully a cash buyer in the wings as a back-up, I am about to lose my onward purchase. There’s plenty of equity in my cottage but I am self-employed (an actor) and as such my income fluctuates wildly. I wonder if I would even qualify for bridging finance?"

You have my utmost sympathy. When there’s a long chain behind you, buying a property can be a very long-winded process fraught with difficulty. You’re stuck in the middle, out of control, and desperate about losing the house of your dreams - just don’t end up losing the shirt off your back by making a rash decision.  

Obviously all lending still needs to be affordable. It’s one thing being able to raise the funds but we always need to make sure that clients can afford the repayments going forward. Your case is symptomatic of this modern age where incomes are frequently not as straightforward as they used to be. You may be blessed with plenty of equity but it’s always feast or famine month to month. 

Take a deep breath. Despite how you strongly you feel about securing this onward property, the traditional option of bridging finance - whilst quick to arrange - is very costly. In theory, they differ from a normal mortgage because they are for a specific short term purpose, general 12-18 months.  Given the specialist nature of the loan – i.e. it’s for a specific short-term purpose - the interest rates can be higher than traditional term loans, generally around1% a month.

Given your income is sizeable but also extremely unpredictable, I don’t think it’s the right way forward for you.

There are two other options I would like to suggest. The first is short-term borrowing, similar to bridging but more adaptable and less expensive. With at least one reputable UK lender offering competitive rates on such financing (currently at around 5% per annum), when your house sale has finally gone through you simply repay the loan, and there’s even an option not to make any payments on the loan until the end of the term. 

This facility will allow you to proceed quickly whilst you wait for your sale to catch up - do just remember the interest will be added onto to the total sum of borrowing, once you finally complete on your sale. The other possibility that you might not have considered is to hold on to your current property and change your existing mortgage into a buy-to-let.

With a prime property such as your present home, this means you can release equity and instead of selling become a landlord instead. Lenders on the whole will look at the potential rental income covering the mortgage repayments by 145% (often calculated at 5.5%, but this can vary with regards to your own income).

In such circumstances, whatever you decide you really do need to have a good broker with the liberty and experience to work with these off-the-radar lenders, the ones that sit outside the main market with an appetite to lend on fluctuating income sources. There are many solutions out there, if you’re in the know. To talk through the specifics of these suggestions, just give me a call.

Ellen Roome runs a team of very experienced advisers at The Finance Roome Ltd. They have a wealth of knowledge in dealing with complex financial situations with regards to mortgages and all types of insurance. Call 0203 588 3353 or visit www.thefinanceroome.co.uk.