Once we retire, perhaps the last thing we want to contemplate is something like loans for pensioners that come with monthly repayments and other obligations. But when pensioners find themselves in need of additional financial services, bridging loans can be a great way to borrow money and not find yourself consistently concerned with immediate repayments.
A bridging loan for a pensioner can be used for a wide variety of post-retirement life changes. Downsizing, applying for assisted living or a care home, or working out long term plans for retirement, all of these financial services can be aided with the help of bridging loans.
In this guide, we are going to take an in-depth look at how bridging loans work for pensioners. Borrowing money may not be an attractive option for a pensioner on monthly pension payments, but a bridging loan is by far one of the quickest and most manageable types of secured loans for pensioners.
Read on to find out more about this opportunity and how we at Bridging Options can help.
How can bridging loans be used for pensioners?
Bridging loans for pensioners can be used in multiple ways for a variety of different needs. First and foremost, these loans are primarily used to secure a loan amount for a major life change that often comes with retirement.
Downsizing
You may want to sell your current property to move into a smaller home – this is popularly known as downsizing.
A large and expansive home is typically felt like wasted space once a person retires and their children have long ago moved out of the family home.
What a bridging loan can do is to allow a pensioner to sell their current property and secure a loan amount through bridging finance that comes with a convenient fixed repayment date.
A debt secured first charge bridging loan provides the funds necessary to move into the new home while the current home remains on the market, however long that may be according to the fixed repayment date.
The bridging loan will be based largely on the property value and this is convenient because it removes the need to immediately start monthly payments not long after the loan is secured, as seen with typical pensioner loans.
Using a standard pensioner loan may also not be an option for pensioners due to bad credit, poor credit history, sufficient equity etc. Most bridging loans for pensioners are finalised based on a vast array of other eligibility criteria that can be used apart from cut and dry bad credit/good credit checks that never reveal the true financial state of a person’s affairs.
Future plans
A bridging loan is also an attractive opportunity because it allows a newfound pensioner to focus longer on the often stressful circumstances that come with moving to a new home.
To secure a loan amount, you will have to go through a loan broker in order to effectively communicate the needs of a bridging loan through high street lenders who make up the bulk of bridge loan intermediaries.
Additionally, a bridge loan can be used for assisted living when disability benefit, a life insurance policy, state pension, or other financial situation limitations would otherwise make affording the move and immediate monthly payments impossible.
What do bridging loans for pensioners cover?
A pensioner can use bridging loans for many different things and all offer the best deals available for exactly what is needed both quickly and with up to a year before repayments are due.
Let’s take a look at some of the main things a bridging loan will cover for a pensioner.
New property purchase
The main example of a bridging loan that can be used by a pensioner is for a property sale that involves acquiring a new property while finances are still tied up in the current home that cannot form release equity.
Chain break
Another example of what a bridging loan can cover is a chain break scenario that can often occur in a property sale.
Since property value estimates can run quite randomly in the UK, this often occurs when a buyer is seeking a new home but has to wait for the seller to make the sale.
A short term loan comes in handy in these situations because it allows you to be prepared for the unknown amount of time it could take for the seller to close their home.
A bridge loan can provide the short term borrowing needed to secure your own home as well as the waiting time – but it is important to exercise caution in these scenarios since many important factors need to be taken into account.
Care home and other fees
A care home can often be extremely expensive compared to the initial thoughts of potential residents considering a retirement home.
A pensioner can easily sell their current home and wait for the sale to go through, but this can be quite uncertain based on the fluctuating unpredictability of property.
What bridging loans can do in these situations, is to provide pensioners an opportunity to secure finance to move into the care home of their choice and focus on paying their monthly fees before the loan repayments begin, which is typically one year later.
During this time, your own home can have more of a realistic opportunity to sell, and then you can focus on repaying your bridging loan.
Access to more money quickly
More often than not, there are a wide variety of other reasons that a pensioner may need to secure funds quickly.
No matter the reason, inquiring about a bridging loan and the qualifications needed to ensure a loan application can be processed accordingly, we strongly advise reaching out to us to discuss your options and to find the best deals for your needs.
Bridging finance rates for pensioners
The rates for bridging loans for pensioners can vary greatly.
This is primarily due to the associated fees – both exit fees, legal fees, lender fees, etc., that come with the regular fee for the loan and the associated interest rates, which admittedly, can be on the high end.
Interest fees for a bridging loan are normally higher because of the associated risk that comes with securing a loan based on various risks that may or may not come with the security against the loan in the first place. For example, lenders will look at the property value of the current home to then calculate a level of risk on how long, or even if, a home can sell.
Since a bridging loan comes immediately, there is the small chance of risk for the lenders just in case a property does not sell and then clients cannot repay.
This is why it is important to use a bridging loan calculator to assess the exact fees that will come with the loan to better judge if this is something you can take on.
Also, you will want to consult a lender to get a risk value of your property compared to the current forecast within the real estate market, and we can provide this service for our clients.
This can also differ greatly whether you are undergoing a first charge loan or a second charge loan, which is more common for pensioners.
Fee breakdown
There is also the matter of the arrangement fees and the exit fees that must be set when negotiating and setting up a bridge loan for a pensioner.
Arrangements fees are the fees that come with setting up and arranging the loan, and will typically be charged at only about 1-2% of the overall loan.
Exit fees are non-negotiable and one of the cornerstones of what makes a bridge loan what it is. These fees are required, but are not very large and only are applicable if the loan is paid off early. This is quite possible if, for example, a home was sold and the amount of the loan can now be repaid in full.
The valuation fee comes in at variable rates and revolves around the valuation of the property which is the main security of a bridging loan. A surveyor will conduct this valuation and the fee will be negotiated based off of these findings.
Broker fees are also a common component of this type of loan and are only applicable if a broker is used for the setting up of an execution of the loan. This fee is also quite low coming in at around 1% of the total loan.
For a full break down of what you can expect when it comes to bridging loan fees, please read our blog here.
What does the application process for pensioners look like?
An appointed representative is always important to ensure you are getting the right deal according to your own particular needs, and this is very important for pensioners since circumstances can indeed be unique.
In terms of the application process, it is best to apply online by completing a set of brief, preliminary questions.
After this is completed, a representative will then contact you to arrange a meeting to discuss all the parameters that come with a bridging loan. The initial rate, fixed rate, legal agreement, property circumstances, interest rates, pre-existing mortgage (first charge) and more will all be discussed.
In terms of the actual application process itself, it is fairly straightforward.
First and foremost, applying for this type of loan is nothing like applying for a mortgage, it moves much, much quicker. The first thing to ensure is that you have a previous property which forms the main security of whether or not the loan is going to advance.
For any other reasons or forms of collateral, this will also need to be listed and thoroughly explained to ensure full accuracy of your loan and the future repayment options if the loan is found to be acceptable to advance.
Always be sure to know and state the exact amount you want to borrow, an estimated price of the property in question, the estimated new purchase price, your exit strategy (this is very important), what your current income is and the frequency of payments, which for pensioners will likely be state pension rates.
Is there a maximum amount of money a pensioner can borrow on a bridging loan?
This differs widely. To be accurate, it can be said that the max amount of a bridge loan can be up to as much as £250 million. The lowest amount you can borrow is as low as a few thousand pounds.
The important thing to remember is that the lender is driving the ship when it comes to this detail. A lender will likely come to a proper amount based on all the application components in place and the applicable valuations that are calculated and confirmed based on the security provided.
There is no clear way to know what number a lender is going to come up with, but if all your details are in order and attractive, the loan amount could be quite substantial.
If that is the case, it is important to use caution in this circumstance, since you have to ensure you will be able to pay off the loan after the allotted time has passed.
When to apply for pension bridging loan
You can apply whenever you are ready to do so. Most pensioners will want to get the ball rolling as soon as possible and then there are some who may want to wait a few years after retirement to see where they are at in their thinking.
Certainly, if you are considering a retirement or care facility, you will want to move quickly since you then have to deal with the particulars of the loan in conjunction with any waiting times or other details that may arise with the retirement community.
Will I get declined for a poor credit score?
Not always, and in fact, usually not. The great thing about bridge finance is that credit history and other debts are not held against you as it would be with something like a mortgage.
This is all regulated by the Financial Conduct Authority, so you can breathe a sigh of relief in knowing that credit is not going to place a limitation on you in this sort of financial service.
FAQs:
Why choose Bridging Options?
At Bridging Options, we can help with any and all of the pensioner bridging finance options available to you. We make it our top priority to find the best deal for you based on your needs. Contact us today to discuss your options.