Bridging Loans Return to Ireland: High Costs, Limited Options for Homebuyers

Paul and Sam sold their Dublin 8 Victorian terraced house for €750,000 but faced pressure for a quick closing. To avoid losing the sale and jeopardizing their new home purchase, they moved out, enduring five months of costly short-term renting, furniture storage, and kennel fees.

Bridging loans, which allow homeowners to buy a new property before selling their existing one, have reappeared in Ireland after the property crash. Currently, only Bank of Ireland and ICS offer these loans. ICS provides financing up to 70 percent of the existing home's value, with a maximum term of 12-18 months. However, it carries a high interest rate of 10 percent and a 1 percent arrangement fee. For Paul and Sam, a €525,000 loan would incur €13,125 in interest and a €5,250 fee over three months, totaling €18,375.

Bank of Ireland offers a «trade-down» bridging loan, lending up to 60 percent of the current home's value at a 7 percent interest rate with no arrangement fee. For example, downsizing from an €800,000 property to a €500,000 one could secure a €480,000 loan, costing €8,400 in interest over three months. Both banks use both properties as security. Mortgage broker Michael Dowling advises against taking a bridging loan without a signed contract for the sale of the existing property due to the risks involved.

While bridging loans can alleviate the stress and costs of interim moves, their high interest rates (double or triple other mortgage rates) mean borrowers aim for the shortest possible term. They are more suitable for downsizers or those moving to less expensive areas. For up-sizers like Paul and Sam, more attractive options are still being explored. Graham Murray of Sherry Fitzgerald notes that these loans can make buyers more competitive in a seller's market by providing flexibility.