Could lenders facilitate trading up or trading down?

The discussion of bridging in another thread made me think of this.

Let's say I have a house worth €300k with a €100k mortgage.
I sell it and have €200k cash.
I am approved for a loan of €300k so I buy a house for €500k.

Why does the lender not lend me the €500k on an ordinary mortgage on condition that I sell my own house?

They would have €600k of mortgages on properties worth €800k - so 75% Loan to Value.

The Central Bank rules would not allow it, but park them for the moment, as they could be adjusted to cater for it.

Of course, people would exploit such loans by saying that they plan to sell their own home, and then they just keep it as an investment and so the bank faces a longer term risk.
And there is a risk of house prices falling and the client is unable to sell the original house and ends up with a bigger mortgage.

Are there any ways for the bank to mitigate the risk involved?
The house would have to be actively on the market.
Maybe the maximum Loan to Value would be 50% - or 75% if contracts have been exchanged.
Could some sort of higher interest rate be charged during the "bridging" period? So if the rate on the new mortgage was 1% per month, it would be a huge incentive for the client to sell the initial property as quickly as possible.

There would be many benefits to such a product

A lot of the chains which break down now, would not break down.
Someone could buy a house and do it up while continuing to live in their own house.
It would make trading down much easier.

Brendan Burgess said:

There would be many benefits to such a product

A lot of the chains which break down now, would not break down.
Someone could buy a house and do it up while continuing to live in their own house.
It would make trading down much easier.

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Brendan, the position until the launch of the ICS product has been ridiculous. People with no existing mortgage were denied bridging when trading down. People with €2m properties looking to buy a €500k apartment were being told to sell, then rent, then buy, so they’d end up doing nothing because who wants to rent when it’s not their thing?

Lending someone €500k against €2.5m of property for a few months is about as low risk property lending as one can find. It’s idiotic that the banks weren’t doing it. Do it, and charge a premium for it!

Gordon Gekko said:

People with €2m properties looking to buy a €500k apartment were being told to sell, then rent, then buy, so they’d end up doing nothing because who wants to rent when it’s not their thing?

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I suspect that part of the reason for it is that they would get slated on Joe Duffy for daring to charge a proper rate for it. "Wha...? They lent you €500k for three months and charged €20k compound interest? " And then the Oireachtas Finance Committee would want them in and ask how they could justify these moneylender rates.

So, there is very little profit and potential reputational damage.