A bridge to beat the stamp duty deadline
Jason Berry is group sales and marketing director at Crystal Specialist Finance
Rightmove has stated that around 100,000 new property buyers could face an unexpected stamp duty bill amid unprecedented delays ahead of the 31 March holiday cut-off date, but the statement should not be so black-and-white, a mortgage is not the only option to secure the dream move.
With many professionals in the finance sector, and a 110,000 strong public petition forcing Parliament to debate a six-month extension, the stamp duty holiday is rarely out the news.
And with Rightmove’s 100,000 omission figure they state it now takes over four months, or 126 days, to get a house sale deal over the line. The topic is reaching fever pitch.
What is not clear is how many of these are private purchases and how many are being driven by property professionals, but the fundamentals stay the same.
The problem is centred around our dysfunctional cradle-to-grave mortgage process, which we all know was not fit-for-purpose before the COVID-19 pandemic issues, let alone with the issues we are all faced with today with disaster recovery plans in place across many businesses.
But there is a genuine alternative that advisers have to consider if they are to offer their clients any hope of meeting the 31 March deadline.
Bridging finance is a solutions product when faced with the scale of the problem. Let’s look at the numbers.
The average bridging finance completion time with Crystal Specialist Finance is just 32 days, and many cases take less than 14 days.
Most are either preventing residential chain breaks or offering refinancing to existing bridging facilities where the commitment to exit has not been met.
Through our carefully managed panel we have access to over 30 bridging lenders and over 150 products, with whom we know the intricacies of what they will lend on and how to manage a successful applications process.
And of course, being of major interest to most, is the cost saving benefit. Here are two specialist finance examples:
Example of cost differential:
• Client purchase price: £1m
• Buy-to-let loan needed: £455,500 net
• Purchase completes on or before 31 March 2021: £58,750 costs
• Purchase completes after 31 March: £93,750 costs
• The result: Not completing before 31 March means £35,000 additional funds are required to complete.
Example of bridging then remortgage solution:
• Assuming 0.55% per month with 1.5% product fee and no exit fee over six-month term
• £478,755.23 gross loan with fees added and interest deducted delivers a net loan of £455,500
• Approximate cost is therefore £23,255.23 on the bridging element
• From the outset a remortgage solution is established with 2.99% available on a two-year fixed basis. A 1.5% product fee is charged over the 25-year term, which equates to £7,181.34
• £485,937.34 is therefore the gross loan and after the lender fee is deducted a net loan of £478,756 is available to redeem the bridging loan facility. Total costs of £30,426.57 are incurred and this assumes the client takes a bridging loan for the full six-month term. (This could be less as the bridging lender will allow the customer to remortgage onto the BTL product from month 1.)
• The result: total potential savings are the difference between £35,000 and £30,426.57, so a bridging solution could save £4,573.43.
We know from years of education and broker conversations that the bridging market can seem an unknown entity, even a daunting prospect, but like the bridging product itself we are a solutions provider.
The speed and financial benefits on offer to any client who finds themselves facing the 31 March deadline date for the stamp duty saving far outweighs any concerns and has to be explored.
No-one should work on the presumption the date will be extended as this answer will most likely not be revealed until the Spring Budget on 3 March, and the pressure on the financial systems them will no doubt be greater than those we face today.
It’s time to look into bridging, time and tide wait for no man.