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Next rung on the ladder

Taking out a bridge loan can be the stepping stone to a better home.

Taking out a bridge loan can be the stepping stone to a better home.

It’s a typical conundrum these days: you want a new home but haven’t sold your old one yet. So what do you do? Jo Caruana asks the experts.

In an ideal world, we’d all sell our properties the day we put them on the market, and find our new homes the following morning. That would give us plenty of time to pack up, move out and move in without a care in the world.

Unfortunately, though, there’s a common chicken-and-egg situation that most of us will experience at some point: the property owner’s stalemate.

It all starts out innocently enough. Having outgrown your current home, you put it on the market and start the hunt for your next one. Of course (as it’s a buyer’s market) you find one… Only you still haven’t sold your first and now you’re stuck. Alternatively, you sell your first one quicker than anticipated, leaving you with the worry of where to live in the interim.

So what’s a would-be property-climber to do?

“It’s vital to start with a professional valuation of your property by a reputable estate agent, and to put your home on the market at a realistic price,” says Patrick Xuereb, a regional manager for Frank Salt Real Estate. “If you are reasonable with the amount you want to get, then it is very possible that your home will be snapped up relatively quickly, giving you the chance to move on without any hassles.”

If you absolutely cannot wait, then there is the option of taking out a bridgeing loan (also known as an interest-only loan). This will give you the money you need until your own property is sold, and effectively bridge the period between selling your first property and buying your second property.

This sort of financing differs from a regular home loan mortgage as you only pay interest on the capital and there is no capital repayment. The capital can then be paid in a lump sum, without any penalties for early repayment.

The benefits of this obviously lie in the fact that it gives you the time you need to sell your property, although it is very important not to jump into this without thinking it over properly, as interest payments can mount up. Be careful to determine your resources in advance and get a clear idea of your budget and timings, especially as this can prove to be quite an expensive option.

“Customers need to carefully assess their financial position before applying for a bridging loan,” explains a spokesperson for HSBC in Malta, “especially if they have an outstanding loan on their present residence.

Knowing what you can afford is such an important part of climbing the ladder

“This is because, until they sell their present residence, they would have to pay three loans - the new home loan, the bridging loan, and the old home loan. They would also be running the risk of having to sell their existing residence for less than originally anticipated, leaving them with a higher long-term loan than they previously planned for.”

With this in mind, the bank recommends that customers discuss their personal circumstances with financial services practitioners specialised in home loan credit facilities, as this could help lead to a personalised solution for their requirements.

Meanwhile, while there are no legal pitfalls to bridging loans per se, it is important to protect yourself by ensuring you would be able to make the loan repayments if the property fails to sell in the stipulated time. “Which is exactly why it’s vital to get a realistic value of the property that needs to be sold,” reiterates Xuereb.

Of course there are other costs to bear in mind when moving, especially if you plane to upscale to a bigger home. For this reason, and before you jump the gun and buy a property in a hurry, you should make a list of your absolute must-haves – such as an outdoor space, washroom or garage – and be specific. This will ensure you get what you want without going overboard. “Knowing what you can afford is an important part of climbing the ladder,” Xuereb continues.

Finally, if you are trying to sell your home in a hurry, it’s worth considering the following tips. “Aside from seeking professional advice from your bank before you commit yourself to anything, it’s also worth engaging the services of a reputable agent, as this will save you time, effort and money.

“Plus, if you’re honest and realistic about the price you can achieve on your property, then you’re off to a very good start. But that doesn’t mean you shouldn’t make an effort to get the most that you can by sprucing it up a little. Ensure your home is well-presented when clients come to visit it, and try to be available to take viewing appointments at the last minute. Believe it or not, depersonalising your property could also make it more sellable, so de-clutter and focus on freshening it up,” Xuereb adds.

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