On this pageSpiralling care home costs in London avoided using a bridging loan against a house worth £500,000 A fast bridging loan was needed to help cover the increasing care fees before the house was sold. How did we secure the Â£100,000 bridging loan? The benefits of using a bridging loan to help toward care fees in London Financial advice from bridging loan experts in London
When an elderly parent is put into a care home, the costs can be crippling for many families. If the parent has a property, this can be sold to pay for the care, but what if the house sale takes too long or the property isn't in a saleable condition?
A professional woman in Albany Park, London, was in a similar situation when her 80 year old mother had to move into a care home due to declining health. Although her mother desperately needed the care, our client struggled to find the financing, and her mother's available cash was rapidly running out.
Her mother's unencumbered house, worth around £500,000, could be sold to pay for the care but required some light modernising and refurbishments to achieve the best market sale price, and she was concerned that the sale might take some time due to the house's current state. She needed to sell the house within a month to avoid being in arrears with the care home, but that time frame was highly unrealistic.
The cost of care home fees in London can vary depending on various factors, such as the type and level of care required, the location, the facilities, and the desired type of accommodation. Generally, care home fees in London are higher than the national average due to the high cost of living in the city. With care costs of £1,500 per week, three months would require £18,000 - money unavailable for our client.
One way she could pay for ongoing care was to find a flexible financing option, such as bridging finance. Traditional high street banks turned her away because of her credit score, so she struggled with alternative financing options.
She needed a quick £100,000 bridging loan to allow her to pay the ongoing care fees, refurbish the house ready to be placed on the market and give the family time to sell the property without being pressured into a distressed and below market value sale.
Our client's mother had to be moved into a local care home in Albany Park, costing £78,000 annually. Although her available cash was running low, she did have money tied up in assets, namely a semi-detached house worth around £500,000.
With no mortgage to pay and around 991 semi-detached houses selling in Bexley, London, in 2022, our client knew the house would sell more than any other property type. However, it needed refurbishment before selling to ensure it was sold for the right price.
She had estimated that she would need around £22,000 to refurbish the home and garden and £78,000 for a year of care fees.
With 400 semi-detached properties worth between £400-£500k selling in Bexley in 2022 (Data source: HM Land Registry), we quickly found a lender who could place a 1st charge loan against the house and provide our client with the £100,000 needed within two weeks.
This short-term financing option allowed our client to spend £22,000 paying contractors for labour and materials to sort the refurbishments and enabled her to pay one year of her mother's care fees upfront.
By providing the £78,000 for care fees, our client had 12 months to sell the property at the current market value while avoiding getting herself into arrears. They could also save money if the property was sold before the term ended due to the no early repayment fee policy which is standard for this lender.
Thanks to bridging finance, our client paid a year's upfront to her mother's care home and sold the property within four months for £530,000, a healthy £30,000 more than initially valued.
In locations such as London, where residential care homes cost, on average, £1,031 per week, time is a critical factor when obtaining financing. A bridging loan can alleviate the situation by providing fast, short-term funding to cover care costs until a more permanent solution can be implemented.
A bridging loan is designed to bridge the gap between the immediate need for funds and the longer-term solution. Bridging loans are typically secured against a property, so if the person requiring care owns a property, this can be used as collateral for the loan, such as in this situation.
By using a bridging loan to cover the care home fees, the person requiring care can continue receiving the help they need without worrying about how to pay for it immediately. This can buy time for the family to explore other options, such as selling the property or applying for additional funding.
It's important to note that bridging loans can be expensive and come with high-interest rates and fees, so weighing the costs against the benefits is crucial to ensure it's the right solution for the family's specific needs and circumstances. It's also important to consider the risks involved, including the potential for losing the collateral (such as the property) if the loan is not repaid on time.
It's important to seek professional advice from a financial advisor or specialist care home advisor when considering the options for placing a charge against a property to cover care fees. They can help you understand the costs and implications of each option and help you make an informed decision that meets your needs and circumstances.
A bridging loan broker that deals with more complicated loan applications will be equipped to help you with financing, so choosing the right broker is essential.
Ensure they are transparent about their fees and charges and communicate clearly and regularly throughout the application process. They should be available to answer any questions you have and keep you informed about the progress of your application.
You can also ask a broker about their track record of successful bridging loan applications. A reputable broker should be able to provide examples of deals they have facilitated and showcase bridging loan case studies like this one on their website.