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We live in the UK, and are seeking to move house and have seen a property which suits our requirements and has been discounted because the owners wish to sell quickly. The asking price is £400,000.

Our property has not sold - it's only just gone on the market at £370,000. But we are lucky enough to own it outright, mortgage free. We would be looking to sell it should we move, not to hold onto it.

In addition, we are fortunate to own another property, a flat, which is worth about £130,000 and from which we receive a modest rental income.

We can pay a 10% deposit on a mortgage for that £400,000, but our current salaries plus the rental income are insufficient to cover it.

I had, however, presumed the bank would take into account the fact we own a property outright when deciding whether we could be offered a mortgage. I did make clear that it would be temporary - that we would pay down the vast majority of it as soon as the house had sold - but it seems neither makes any difference.

Is there a financial product that will allow us to borrow the sum needed, taking our assets as collateral instead of our income when decided whether it is safe to lend us the money?

Bob Tway
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2 Answers2

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Yes, you want to look for a "bridging loan", see eg more info here: https://www.moneysupermarket.com/loans/bridging-loans-guide/

Bridging loans are designed to help people complete the purchase of a property before selling their existing home by offering them short-term access to money at a high-rate of interest.

As well as helping home-movers when there is a gap between the sale and completion dates in a chain, this type of loan can also help someone planning to sell-on quickly after renovating a home or help someone buying at auction.

This is a way of borrowing in the short term in exactly this situation, although there are risks and downsides (relatively high interest rates, and potentially also high admin fees).

Vicky
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Editing per Vicky's comment - this answer is based on a US perspective, and although it may not be literally applicable to the OP's situation, I'm going to leave it as-is in the hopes that it may help others in the future who find this question and are in the US.

You said,

We can pay a 10% deposit on a mortgage for that £400,000, but our current salaries plus the rental income are insufficient to cover it.

This makes it sound like the issue was your debt to income ratio wasn't sufficient to get the loan you were pursuing.

You asked,

Is there a financial product that will allow us to borrow the sum needed, taking our assets as collateral instead of our income when decided whether it is safe to lend us the money?

Generally, no. A lending decision like a mortgage or home equity loan is based off debt to income ratio (among other factors) because that's a good proxy for cash flow. Of course, the bank is concerned about collateral to secure the amount of the loan (i.e. that they'll be able to have a lien on the title for the home and the home's value is proportional to the loan amount), but they're also concerned about cash flow in order to ensure you're able to make payments. Holding a property worth £370k, on its own, does not imply that you'll be able to make monthly payments against a given loan, because that property's value isn't liquid or divisible enough to make monthly payments from.

As an alternative, you may wish to speak with your real estate agent about opportunities you may have to make an offer with your financial situation in mind. In the US at least, it's common to make offers contingent on other real estate deals - for instance, you could make an offer on the new house contingent on your old house selling for at least $X (where X is sufficient for you to pay cash for the new house). If the seller is motivated, they may accept this offer as a way to lock their sale in.

dwizum
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