Bridging loan - house not selling

S

Sanguine Fan

Guest
My son was granted a bridging loan in December 2006 to enable him to trade up to his new house. The bridging loan was to be repaid through the sale of his existing house. However, the bank advanced the bridging loan even though no contracts had been signed for the sale of his exisiting house. In fact, no prospective buyer had emerged at all at the time the bridging loan was granted.

Despite knocking about €80k off his original asking price of €525k, the house remains unsold having been on the market since September 2006. There are about a dozen other houses for sale in the same estate and none has been sold. Meanwhile my son has been paying monthly interest charges on the bridging loan, in addition to hefty mortgage repayments. He cannot continue these double payments indefinitely and there is no sign of the house selling.

At the present asking price he would just about clear the bridging loan. However, it seems increasingly unlikely that he will get even that.

He has considered renting, but there are several drawbacks:
  • The house is unfurnished.
  • There would be a liability for CGT when he sells the house eventually.
  • And he would presumably need another mortgage to clear the bridging, which might be difficult to get given his present financial straits
Does anyone know how mortgage lenders are currently dealing with similar situations? The obvious solution would be if the lender took possession of the existing house and cleared the bridging loan. Is this likely/possible?

Are there any other options?
 
He took a risk. He borrowed the money. The risk has not paid off. It is not the banks fault. He owes the money. It is highly unlikely that the bank will quietly take the house back and clear the loan. They would then have to sell the property.

He has to talk to the bank - get a view and take it from there. He may have to rent - has he crunched the numbers? Would the bank convert the bridging to a mortgage if he rented? Does it make more sense to at least have some income from the property? Rent for 6 months?

mf
 
Everything you say is true. He is liable for the debt.

However, I am surprised that any reputable lender would grant an open-ended bridging loan at a time when there were already signs of a slowdown in the market. Surely, they have some duty of care towards their customers who may not be as au fait with housing trends as, presumably, the lenders themselves are?
 
Sanguine Fan said:
Everything you say is true. He is liable for the debt.

However, I am surprised that any reputable lender would grant an open-ended bridging loan at a time when there were already signs of a slowdown in the market. Surely, they have some duty of care towards their customers who may not be as au fait with housing trends as, presumably, the lenders themselves are?
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I'm afraid its every man for himself. No-one forced him to take on this debt - he did it freely and willingly and with the benefit of all the disclaimers that go with the paperwork. He was also legally advised. More than that, its not rocket science to work out the sums.

I know that that sounds harsh but its so important that consumers/Joe Public are themselves conscious of their own responsibilities.

mf
 
I agree with mf1 about going to the bank to discuss options. If he's been paying bridging for so long it must be crippling him financially, not to mention the worry of it.
If the bank would agree to change the bridging loan to an interest only mortgage it might be feasible to rent it out.
How much would it cost to do this and pay the stamp duty as well? Would it be worth dropping the price by this amount to try to achieve a sale?
What about going to an independent financial advisor/mortgage broker to see if another bank would remortgage the property if your son would rent it out.
Just a few ideas that I'm throwing out but I think your son really needs get proactive in trying to do something to change the current situation.
 
Thank you Marg. You are right - it's a desperate situation to be in, even though my son walked into it with both eyes open.

However, his lending institution is proving to be particularly inflexible. He has been trying to meet them but they insist that he must deal only with the individual who granted the original loan, and he or she is on leave until the end of November. Also, in the last month, he applied to them for a restructuring of his borrowings to try to reduce his crippling monthly outgoings, and they turned him down.

I don't know if any financial services representatives read or participate in this forum, but I would love to hear how any bank could view the granting of open-ended bridging loans as responsible lending.

Given that others must be in the same situation, why aren't the banks looking at creative ways to help their customers deal with this dilemma. Surely it's in their own interests to avoid expensive repossessions down the road?
 
As I suggested above why is he not attempting to deal with the situation that he got himself into by cutting his losses and cutting the asking price even further to shift the property if necessary? No offence but I think you're looking for somebody to blame other than your son for getting into this situation. As mf1 originally said - he took a risk (by trading up before getting rid of the original PPR) and it hasn't paid off. This is his responsibility and it seems to me to be a waste of time and effort to be pointing the finger of blame elsewhere.
 
ClubMan said:
it seems to me to be a waste of time and effort to be pointing the finger of blame elsewhere.
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I think I have made it clear that my son entered freely into his arrangement with the lender and that he took a risk in doing so. My main reason for starting this thread was to see if anyone had a suggestion that we had not previously considered.

Yes, he could cut the asking price further but there seems to be little interest in the particular estate in question. There are a quite a few other houses for sale there that remain unsold. All have been dropping their prices, yet viewings and general interest has been virtually nil. It simply does not seem to be an area to which prospective buyers are attracted - at any price.

However, my second reason for posting was to vent my frustration at what seems to be irresponsible lending, and to try to understand how any reputable lender could cheerfully hand out a large six-figure sum, which could only be repaid from the sale of a house, and to do so in a market that was already wilting.

The only response I have received so far to this point is basically, caveat emptor, which is fair enough if you are buying a fridge. But I thought banks carefully evaluated the likelihood of getting their money back before they granted a loan. Maybe I'm just hopelessly out of date and naive.
 
Would I be right in understanding that he has already purchased the new house? If so, while I know its not ideal, could he backtrack and try and sell the new house instead? He might get closer to the asking price there if its in a more desirable neighbour and/or slightly bigger?

Or if he hasnt bought the new house can he just take his current place off the market, live in it himself, rent a room and concentrate on paying back the bridging loan?

Neither ideal, but if the house isnt selling at his lowest asking price he might have to consider alternative solutions.
 
I'm assuming he has used the bridging loan to buy the new house but casiopeas suggestion that perhaps he should look at selling the newer house is very good and very creative. Its a very unpalatable idea but worth looking at.

I sat opposite a woman today who told me she would not, under any circumstances, come hell or high water, no holds barred, countenance what she perceived as a backward step/downward move in house purchase. I'm afraid she will be sorely disappointed because in a difficult market where her own house will not sell for what she wants that she will have to face unpalatable options.

Times have changed.

I'm interested in the notion also - one I've put forward on the board before - that some houses will not sell - at all - unless the price is dropped very much - as in much below the vendors lowest conceivable (so far) selling price. Sanguine Fan's post would seem to support that idea.

mf
 
Sanguine, it is not acceptable that the provider of the bridging loan will not discuss this until a certain person is back from leave, your son dealt with the institution not an individual. This aspect of the problem is certainly something that you should raise with the Financial Regulator.

ps. i can completely see why you would be frustrated with some of the responses, to point out that it was your son's fault once is acceptable, to repeat it a number of times is uneccessary and unhelpful.
 
mf1 said:
that some houses will not sell - at all - unless the price is dropped very much - as in much below the vendors lowest conceivable (so far) selling price.
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This thread Post #2 seems to support that as well.... (though who is to say that this particular property was not massively overvalued at the first place)
While vendors & EAs were laughing at somebody making an offer €10k below unrealistic asking price, today's buyer do not hesitate to offer way way below asking price, and nobody laughs anymore except may be the buyer
It is seen as an act of God that somebody got lost in the neighbourghood and make an offer on a house...:rolleyes:
 
Hi Camry

I'm not disagreeing with you at all. I'm just saying that (some)Vendors have not picked up the message as yet. Much depends on the reasons why people want to/need to sell - if they are not under financial pressure, some people will make a decision to hold on to a property - particularly if it is one they bought quite a long time ago which is income generating. People who want to sell ( as opposed to "must" sell) may choose to stay put.

The real difficulty is with people who "must" sell where there are purchasers out there with huge choice - many of whom are unwilling to buy because they see no bottoming out. Its very tough.

mf
 
Many thanks for the various suggestions since my last post. I'd like to think that a dramatic cut in the asking price would yield a result. However, I suspect it won't. A more realistic, if more unpalatable, suggestion is that he sell his new house. He would not get what he paid for it, not by a long shot, but it is in a more marketable area and it would probably bring in enough to clear the bridging - and make a dent in his mortgage.

When (eventually) we talk to the lender we will seek their advice too. After all, they must have faced this situation already with other clients.

It has been a painful lesson but if I could offer one piece of advice to anyone trading up, down, or sideways, do not - under any circumstances - sign a contract to buy your new home until you have already got a contracted purchaser for your old one. And I would say this even if we were still living in the halcyon days of the early 2000s.
 
"It has been a painful lesson but if I could offer one piece of advice to anyone trading up, down, or sideways, do not - under any circumstances - sign a contract to buy your new home until you have already got a contracted purchaser for your old one. And I would say this even if we were still living in the halcyon days of the early 2000s."

Excellent advice. But I would go further. Do not sign contracts on a new purchase until you have closed the sale of your old one.

mf
 
erw fran said:
to point out that it was your son's fault once is acceptable, to repeat it a number of times is uneccessary and unhelpful.
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Presumably stating and reiterating more than once that lenders may have some responsibility in such matters is just as unecessary and unhelpful? :rolleyes:
 
Hi,

I've nothing of any help to offer you but I just wanted to say best of luck to your son. I'm sure it's causing you alot of worry also as to see your child (or anyone) in this possition must be horrid. I know that for most people who are spouting on about reckless behaviour and all that are probably that 5 or 10 years older than alot of people who are trying now to build a life and home for their family's.. that's just the luck of the birthday draw... I really do wish you well and not to sound in any way flippant. it's only money/houses they print/build them everyday... Best of luck. I'm sure a lot of people here really feel your situation.
 
udnewhouse said:
Hi,

I've nothing of any help to offer you but I just wanted to say best of luck to your son. I'm sure it's causing you alot of worry also as to see your child (or anyone) in this possition must be horrid. I know that for most people who are spouting on about reckless behaviour and all that are probably that 5 or 10 years older than alot of people who are trying now to build a life and home for their family's.. that's just the luck of the birthday draw... I really do wish you well and not to sound in any way flippant. it's only money/houses they print/build them everyday... Best of luck. I'm sure a lot of people here really feel your situation.
Click to expand...

Well said udnewhouse

joejoe
 
Many thanks udnewhouse and to everyone who offered suggestions, and kind words.
 
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