“Housing is a human right. There can be no fairness or justice in a society in which some live in homelessness, or in the shadow of that risk, while others cannot even imagine it.” – Jordan Flaherty, Floodlines: Community and Resistance from Katrina to the Jena Six
The veracity of this quotation by Jordan Flaherty cannot be argued. Housing is and should be considered a basic human right. However, the argument that will stand is who pays for the right of people to own their own homes?
The housing crisis: Trials and tribulations
For the purpose of this article, let’s assume that medium- to high-income earners are able to afford to pay for their own housing. Is the government required to supply housing to low-income earners or is everyone required to provide their own homes?
Again, let us assume that everyone needs to source and pay for their accommodation. Additionally, the persistent UK housing crisis continues to “place sustained upward pressure on housing prices”.
Therefore, it is logical to conclude that that home buyers will have to overextend themselves to afford to purchase a property. Information recently acquired from the Bank of England adds weight to this statement as it shows that high-risk housing loans (those lent at 4.5 times the applicant’s salary or above) made up 8.1 per cent of all home loans last year.
The article titled “Bank of England tightens mortgage rules: what it means for you” by Sam Meadows of the Telegraph.co.uk notes that the Bank of England has tightened its rules on lending affordability. In other words, the standard stress test that it uses to determine whether a home loan applicant can afford the loan repayments.
While the strengthened affordability stress tests are an essential requirement of the drive to prevent home owners from over- committing and not being able to afford the monthly mortgage repayments, it also prevents new buyers from entering the market. This, in turn, adds to the housing crisis.
Housing loans: The challenges and solution
Adding to the affordability issues, the time it takes for a mortgage application to be approved and paid out by a financial institution can present a challenge to the new home owner.
Essentially, a buyer signs a contract to purchase a home and successfully applies for a bank loan; however, there is often a time delay between the contractual payment date and when the bank releases the funds. Therefore, the question that begs is how does the home owner bridge the funding gap between these two dates?
A viable answer to this question is that the home owner can apply for a bridging loan.
Simply stated, a bridging loan is short-term finance which is designed to bridge the time gap between the closing date of a property purchase and the traditional mortgage application process. The bridging loan application process through a reputable financial institution typically takes a few days from the start of the application to its successful conclusion.