Over the last few years, housing prices abroad have dropped as much as 70 percent.
Because of this, more residents of the United Kingdom are jumping at the chance to buy holiday and vacation homes at much less than what they would pay otherwise.
In order to secure these deals as quickly as possible, UK residents are turning to short-term financing in the form of bridging loans to make the transactions possible.
While this is a good strategy to bridge the gap between purchase and mortgaging, it is also important to consider the consequences if a deal falls through or no long term financing can be found.
What is Happening in the Housing Market Abroad?
Recent years have seen a huge decrease in the value of holiday and destination homes in other countries. The Florida housing market has seen property prices fall a staggering 70 percent because of sub-prime issues and even popular countries such as Spain have seen similar reductions – statistics show that there are approximately 700,000 unsold holiday homes in Spain and the property prices in some coastal regions have dropped almost 50 percent.
Although these are turbulent times for these exotic destinations, it has led to great opportunities for buyers and financiers looking for a great deal.
Sellers and realtors in these struggling markets are quick to unload their properties. This sense of urgency is the perfect opportunity for buyers – many times, buyers will submit an offer lower than the property’s purchase price and win the deal since the seller knows the property will finally be sold.
Buyers and sellers alike know it is time to move when these deals come around, making bridging finance loans the best option when trying to secure short-term financing for projects such as HMO properties and semi-commercial buildings. Recent studies have seen a 22 percent increase in lending for property investment abroad in the last few years alone.
How are Bridging Loans being Used to Purchase Holiday Homes?
With the huge property price reduction being seen in many popular places, United Kingdom residents are scrambling to get their hands on their properties. Most of the deals being offered on these homes are short-term and require financing as quickly as possible.
While it takes some time to secure a traditional mortgage, bridging finance can be arranged quickly to help close the purchase and buy time for long-term financing to be set up. Although bridging loans help close gap, it is important to note that there can be some grave financial consequences should something go wrong in the buying process. When thinking about property auction finance many people will opt for the speed and convenience of bridging.
What are the Risks of Bridging Loan Defaults on Home Purchases?
Although lenders are quick to offer to finance for holiday home purchases, it does not come without a price – interest rates on these loans can vary between 1.2 and 1.25 percent, making them a very expensive way to secure funding. Depending on the situation with the home purchase, lenders may ask borrowers to provide both the home being purchased and the borrower’s current home as security.
This poses the borrower a great risk should the deal fall through or if they default on the loan. If a default should occur, borrowers will lose both their holiday home AND their current home to the lender.
With the foreign housing market in a decline, many UK residents are taking the opportunity to purchase their perfect holiday home. While the deals cannot be questioned, it is important to consider the price and risks involved with using a bridging loan to make the transaction.
Although bridging loans are designed for fast financing and even buy to let investments, they come at a very high price in the way of interest rates. Additionally, transactions considered risky by lenders will often need more security than traditional transactions and has the potential to put both the borrower’s holiday home and their permanent residence at risk.
When personal debt gets to a certain level
Just like a 3rd world nation or a company, when an individual gets to have a certain amount of unsecured debt compared with their income, the debt becomes unsustainable. There comes a time when you need to get IVA Debt Advice to see if there is a reasonable way to part pay and have the remainder of your debts written off.
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