Question 5
Will I need a bridging loan and what will it cost?
Although it is not generally recognised it is likely that in most transactions a bridging loan at least for a brief period will be needed if you are both buying and selling a property.
The reason that a bridging loan is needed is because of the way in which settlement takes place in Scotland. When you buy a property the keys of your new house cannot be released until the sellers' solicitor has received the payment. Payment cannot be made to the sellers' solicitors until you have funds for the whole purchase price.
The purchase price is normally funded from two elements: -
(a) Building Society or Bank loan and
(b) Your own funds (often being provided from the sale proceeds of your existing property).
The Building Society loan funds are normally available although you should appreciate that in many cases Banks or Building Societies will not allow you to use the loan funds for your new property until the old loan has been repaid and, as a result, it is often necessary to arrange a bridging loan for a brief period of 24 or 48 hours until you receive the sale price from the existing property and repay the existing loan.
If the balance of the purchase price is coming from sale proceeds these can only by used once you have received the price from the buyer of your property. This cannot take place until you have vacated the property and the keys have been released to the new buyer or the new buyer's solicitors. These payments therefore have to take place while the removal vans are travelling between the properties and any delay or failure of the party buying your house to move the money, or any problem with their loan funds, can result in these funds not being available to enable you to conclude your purchase.
A safer course and one that we normally suggest is that a bridging loan is arranged hopefully for a minimum period of 24 hours. This greatly speeds up settlement and usually means that you can obtain the keys for your new property as early as possible on the date of entry without having to worry about any problems caused by the buyer of your property as a result of their funds not being available for any reason.
We have indicated below the cost of a bridging loan per £10,000.
Bridging loans are usually worked out on a percentage above Base Rate. The percentage often varies between Banks and can vary depending on the circumstances of the bridging loan.
As an example here is the cost of a bridging loan where interest is charged at 3% over Base with Base Rate being 4.75%.
Any changes to Base Rate or any changes in the percentage over Base being charged by the Bank will affect the exact figures for this table.
| Amount | Weekly Charge | Daily Interest |
|---|---|---|
| £50,000.00 | £74.52 | £10.65 |
| £60,000.00 | £89.42 | £12.77 |
| £70,000.00 | £104.33 | £14.91 |
| £80,000.00 | £118.90 | £16.98 |
| £90,000.00 | £134.13 | £19.16 |
| £100,000.00 | £148.63 | £21.23 |
| £120.000.00 | £178.40 | £25.48 |
| £140,000.00 | £208.08 | £29.73 |
| £160,000.00 | £237.80 | £33.97 |
| £180,000.00 | £267.53 | £38.22 |
| £200,000.00 | £298.07 | £42.85 |
| £225.000.00 | £334.41 | £47.77 |
| £250,000.00 | £359.59 | £51.37 |
| £275,000.00 | £408.73 | £58.39 |
| £300,000.00 | £445.90 | £63.70 |
The bridging loan can be arranged either by you through your Bank or by us through our Bank. We prefer and normally suggest that we arrange the bridging loan through our Bank as it makes the movement of the funds much easier to control and it also cuts the interest charge payable by you. The bridging loan can however only be arranged through our Bank provided you have a concluded missive for the sale of your property.
