As of 1 April, an additional 3% Stamp Duty is applied to those owning more than one home. However, if a borrower intends on selling their first home but is unable to do so before they buy a new home, they will also be required to pay the Stamp Duty premium.
This will be refunded by HMRC if the first home sells within 36 months of the purchase of the second property, but it may be an unaffordable expense for some.
Stephen Wasserman, director of West One Loans, explained that a bridging loan would be a good option for borrowers who are stuck in this position.
“One of the prominent advantages of bridging loans is their versatility,” said Wasserman.
“As long as the loan can be secured against a property asset and the borrower has a clear exit strategy, a bridging loan can be used for almost any purpose – it could therefore be an option in this situation.
“Short-term finance could be secured against one property, in order to cover the cost of Stamp Duty paid on the purchase of a different property. The exit strategy in this situation would be the sale of one of these properties.”
He said that brokers must first look at an individual client’s specific circumstances to determine the best way to unblock a property chain quickly.
“Bridging finance has the advantage of being quick, taking days to arrange rather than months. Other options like high-loan-to-value mortgages exist, but lenders will only provide this type of finance to clients with excellent credit histories, and a safe and steady source of income. Since some clients won’t be able to obtain these mortgages, bridging could be the solution,” he said.