bridging finance

How to upsize your family home

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We all know about the struggles of first-home buyers in today’s property market, however, there is a new group in an equally precarious position: those with “honey, I grew the kids and shrunk the house” syndrome. Lance explores how this group can upsize their home.

 

Here’s one of the main issues facing the upsizing family: Current housing market has meant that buyers with the least (read: zero) conditions win in the offer process. So, then, how do you purchase your next home without the fear of not only you becoming homeless, but also displacing your family? This hurdle facing the upsizing family stems the flow of smaller homes ideally suited to the many despairing first-home buyers.

 

So I propose three potential solutions for the too-small-home owner:

 

1.  Put in an offer conditional to sale of your existing property

In the Wellington property market of early 2018, there seems to be an ever so slight sway back towards favouring the purchaser. This is giving buyers more space to negotiate terms, particularly if the property has quirks. This being said, an offer subject to the sale of your property is not the most attractive term. It could take weeks to sell your smaller home, and there is no guarantee for the vendors that this will ever take place.

 

2.  Sell your home first

Sell your home, move to a rental (note, there are no rentals) with your family and hope to get back into a larger property. Now, I have a five-year-old daughter, and a two-year-old son, and as a parent the risk involved in such a move can just be paralyzing. What if we price ourselves out of the market? What if we can’t rent near their school/day care/work?

One of the benefits, of course, is that you are ready to offer (if you are not under a fixed rent agreement)—you have your cash in your hand and are ready to pounce!

 

3.    Bridging finance 

There are a couple of types of bridging: Open and Closed.

 

Closed bridging is when you have a sale date already confirmed for your current property and you wish to settle on a new property sooner than your current property is sold.

 

Open bridging is when you wish to cement an unconditional offer of purchase before you have a confirmed sale date on your current property.

 

Although both can be difficult to obtain, the questions the banks need answering over the bridging phase are as follows:

·      What is the equity position (the difference between your loan and the value of the property/s)? (the more equity the better)

·      Do you have access to cash for covering payments on both loans for an extended period of time?

·      You’ll often also need to provide valuations on both properties to confirm the likely sale price and demonstrate job security and income.

As always there are multiple considerations both in your personal situation and in partnering you with the right bank. Currently we know a couple of banks who have a greater appetite for bridging finance than others. If you would like to discuss the possibilities of bridging finance be sure to contact us at Velocity Financial and confirm whether this is an option for you.

 

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A Disclosure Statement is available free of charge upon request

The Ups and Overs of Bridging Finance

If you’re buying a property but you already own another property and will end up owning both simultaneously for a short period of time, then you’ll probably need bridging finance. Brendon explains the intricacies of this daunting financial situation and explains why you should consider gaining pre-approval before going to market.

 Right now there are two versions of bridging finance available to you:

The first is called Open-Bridging Finance and has no fixed date for when you will sell the property you currently own. The second is Closed-Bridging Finance and occurs when you already have both a fixed date for the sale of your current property as well as the purchase date for your new property.

 

With Open Bridging you organise finance to buy a second property without having confirmed the sale of the first property. The bridging is open because there is no specified date where the agreement will end. From a bank's perspective, this is pretty much like having a loan for two properties, as there is no definite end date. To get this type of bridging finance approved at a bank you need to show you can service the loans on two houses indefinitely.

 

For Closed-Bridging Finance you will have a signed sale and purchase agreement for not only the house you are planning to buy, but also the house that you are going to sell. It is simply then a matter of bridging the fixed time between the purchase of the new house and the sale of your existing house. In this case, due to there being a definite end date, banks will look a little more leniently on your income and ability to service your temporarily enlarged debt.

 

The cheapest way to do bridging finance is through a bank. Both of the above scenarios can be done at standard bank interest rates. However, at Velocity Financial, we also work with non-banks to organise bridging finance when banks aren't willing to come to the party. And keep in mind that there are many situations when they won’t.

 In the current housing market in New Zealand, it can be a whole lot more advantageous to have bridging finance in place so offers on new property don’t have to be subject to the condition of selling your existing house. I haven’t heard of any situations in months where offers that are subject to the sale of property were successful in securing property.

 Every situation is different and the advisers at Velocity are happy to talk through your situation to enable you to keep moving forward.

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Four and a Half Fun Facts?

Four and a Half Fun Facts

There are many things to think about when buying a new house. Here Lance Shearman covers off four quick house-buying facts that will help you cover your bases, plus an extra one to tuck away from our in-house fashionista.

 

1. Interest Rates

Interest rates will rise and fall, so try, if you can, even for five minutes, not to focus solely on rate prices! Instead, also think about structuring your home loan and time frames by asking yourself these questions: What is the best loan structure for the future plans I have? If or when will I buy my next or first property? How can I make my money work for me? And what is the best way for me to reduce debt?

 

2. Land

Solely purchasing land is different to purchasing a property on land. For land you'll need a 20 per cent deposit and it will require a registered valuation. In Christchurch the land will need questions answered around what the earthquakes have done to it. This will affect the deposit required (can send it up to 40 per cent in some cases). The size of the land and the zoning will also affect the deposit required.

 

3. Ducks in a Row

When purchasing in this current market, tick off as many conditions as possible.

"Speed is the essence of war. Take advantage of the enemy's unpreparedness;" -Sun Tzu, The Art of War

While "enemy" is a slightly over the top way to look at other prospective buyers, when you're at the bargaining table or nervously waiting in the auction room, it's good to be as prepared as possible. So take some time to get those ducks in a row.

 

4. Bridging Finance

When the purchasing of your new home and sale of your old home don't quite match up, you will likely need bridging finance, but this can add another level of stress when purchasing. So, if possible, settle your existing property on the same day as settling your new property.

 

4.5. Fashion not Function

Not wearing socks with dress shoes is a risk. However, fortune favours the brave!

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.