Money Helpdesk: Bridging the gap on a short-term basis

MY 82-YEAR-OLD mum has been offered £61,000 for the council house she bought. An extension is being built on to my sister's house to give my mum her own independent 'granny flat'. The problem is that she doesn't want to move until the extension is complete. A friend of the family is acting like a project manager and wants daily cash to pay workers and buy material. My mum approached her bank, RBS, for a bridging loan for £25,000 over two months (the cost and time of the exten

At first they weren't sure, maybe because of her age, but finally agreed as their money is safe. But my mum doesn't like the cost of the load which was about 1,000 a month. Is there a better and cheaper way to do this business.

AM

John Postlethwaite, a mortgage adviser at Punter Southall Edinburgh, writes:

THE Royal Bank's normal bridging finance terms are calculated on an interest only basis, so for example if 'closed' bridging had been agreed a typical rate would be 6.5 per cent plus a 1.5 per cent application fee. This would give repayments of approximately 136 per month with an application fee of 375.

However, bridging finance is generally only offered by them when you are selling a property and purchasing a new one, therefore your mother may not have qualified under these criteria.

It may be that the Royal Bank has agreed some other type of loan facility whereby the repayments of 1,000 per month include not only interest, but capital as well. As long as this is at a competitive interest rate and has no application fees or penalties, this may actually work out cheaper in terms of interest charged over the two-month period. I would assume the monthly payment includes a large amount of capital repayment which is why the monthly payments appears so high.

I would approach the Royal Bank again and ask on what basis the monthly repayments have been calculated and if possible could these be made on an interest-only basis. Or could the finance be raised by way of a secured overdraft with no monthly repayments being made and the capital being repaid once the house sale goes through? The final alternative for your mother would be for them to extend the term of the loan which would mean the capital element of the monthly repayment would fall, making the monthly cost lower.

Otherwise you may find it easier if you could raise a further advance on your own home or your sister's, provided you have sufficient equity. Again to keep costs down this would need to be on an interest only basis and carry no early redemption charges, so it could be repaid when the sale of the property went through.