For almost two decades, what many consider to be an essential part of a housing market has been absent from the Irish lending options: bridging loans.
As one letter writer to this paper wrote back in 2021: “Bridging finance would enhance social mobility in our pressurised housing market and it would facilitate the release of more, bigger houses on to a market that is experiencing a supply shortage.”
Bridging loans are now on their way back. But how will the new iteration of short-term finance work? And will it stimulate activity in the market?
Demand
You’ve found your dream home and need to buy it – now, to see off rival buyers. But you’re still in the process of selling your own home and won’t have the funds required to complete the purchase of this new home. Once you sell your property, you’ll have enough to buy the new home outright, without the need for a mortgage, but not until then.
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So what do you do?
Well, until recently, not much, as there has been little availability of the finance needed to close this gap.
This lack of short-term finance is “one of the biggest challenges we have in the trade up and trade down market”, says Marian Finnegan, chief executive of Sherry FitzGerald, who welcomes the new launch.
“It’s not a silver bullet, but a step in the right direction,” says Finnegan.
In the absence of such finance, anyone looking to trade down generally got caught in a chain-style process.
The challenges facing those trading down as their families move out are quite distinctive, she says, as they have likely lived in their home for a long period of time and may be of a more advanced age.
“It’s very complicated for everyone,” says Finnegan. The “vast majority” of people trading down won’t rent. Instead, they say: “I’ll only close this sale [for the new house] when I can close my sale [for my existing home].”
“So the sales process becomes quite protracted,” she says, adding: “They do not want the risk of selling their own home first, and not knowing where they will live.”
Bridging finance would allow them to deal with that, by enabling them to purchase their new home, before they have sold their current one.
“It would bring a lot more confidence and security into the process,” she says.
It may also mean a boost in supply; of all the properties Sherry Fitzgerald sells in a year, only 9 per cent are by this cohort trading down which, Finnegan says, “is low by normal standards”.
Another issue, of course, is finding a home to move into, something bridging finance won’t help with.
As Finnegan notes, those who trade down either tend to remain in the area they are familiar with or, to be close to family, move to an entirely new one. But it’s not an easy task, with few apartments being built for this group.
“There’s a huge problem with lack of properties in all segments,” she says.
New products
It hasn’t always been this way. Bridging loans were once readily available; however, the market all but dried up in the years after the financial crash.
Now the bridging loan looks set to be revived – but only in part.
Late last year Bank of Ireland said it would bring some innovation to the lending market, by introducing a new bridging loan product. According to a spokesman, the product is due to launch “in the coming weeks”.
Crucially, however, the new product, Trade Down, won’t facilitate people moving to a more expensive home. As the name suggests, it is only suitable for those trading down – a less risky prospect for lenders, perhaps.
The bank says that is “exploring other product innovation focused on supporting expanding families to trade up to a larger property”.
“I’d love to see it being extended,” says Finnegan.
As it stands then, the product looks likely to appeal only to a limited cohort.
The most you’ll be able to borrow is 60 per cent of the current valuation of your existing home. You can borrow the full price of the new home – provided that this does not exceed 60 per cent of your current home.
So, if your home is worth €800,000, for example, you will be able to avail of bridging finance of €480,000, which you can use to purchase your new home – either alongside your own funds or not.
You will pay interest monthly at an annualised rate of 7 per cent on the amount you borrow for as long as the loan is outstanding, with the maximum term being 12 months.
Rates on bridging loans are typically some way north of mortgage rates. Bank of Ireland says a €400,000 loan, over 12 months, will cost about €28,744, or €14,123 over six months.
Now that Bank of Ireland has taken the initiative, the expectation is that other lenders will follow. Finnegan would like to see all the financial institutions take a similar stance.
“It won’t be a big part of their mortgage book, but it will be an important part,” she says.
AIB, however, has poured cold water on the idea, citing lack of interest.
“To date, we have not seen significant demand for specific mortgage bridging products for customers who are trading down,” a spokeswoman says, adding that it will, nonetheless, keep its product offerings “under constant review”.
In the absence of bridging finance, AIB says it still facilitates sales where the closing process is between two properties, working with the customer and their solicitor “to ensure a streamlined drawdown process to enable such sales to close”.
Other options
Bank of Ireland is not the only lender to offer short-term loans aimed at facilitating housing transactions.
ICS also has a bridging loan option, which it launched back in 2024. The brand, owned by non-bank Dilosk, offers bridging finance with terms of up to 18 months, allowing borrowers to transition into a regular mortgage facility thereafter if desired.
It is a bit more flexible than Bank of Ireland’s offering, in that you can borrow up to 70 per cent of the value of your existing home from a minimum of €100,000 to a maximum of €1.5 million. You also have the choice to either let the interest roll up with the capital sum over a term of up to 12 months, or pay the interest as you go along. In this case, you can extend the loan period to a maximum of 18 months.
However, another limit also applies, in that the maximum loan amount “will typically not exceed 3.5 times an individual’s gross annual income”. For a possible downsizer drawing down a pension, this gives limited flexibility, given the average annual pension income.
It’s also quite expensive: interest rates vary from 11.32 per cent, where the borrower is paying down the interest, to 11.72 per cent where that interest is rolling up with the capital. An arrangement fee, of 1 per cent of the loan amount, also applies.
ICS also offers bridging loans for buy-to-let investors, and those buying at auction, with higher rates of up to 12.56 per cent.
Those availing of the local authority purchase and renovation loan also have access to bridging finance. This government-backed mortgage and loan is aimed at helping people buy and renovate a derelict or uninhabitable home, who are unable to access finance from traditional lenders.
The loan has two parts – a fixed-rate mortgage loan, and a variable-rate bridging loan. The bridging loan – which is interest only – must be repaid as soon as you get the grant. It is typically offered at a term of two years or less – and is a lot cheaper than commercial options.
The current variable rate is 3.5 per cent for two years (APR 3.56 per cent). As it is variable, that rate may change, and your monthly repayment is on an interest-only basis.
