Is Bridging Finance the Best Solution To Avoid Chain Breaks?

Broken property chains are the ultimate nightmare scenario; they are also an all-too-common reality. Research suggests that as many as 30% of all property sales in the UK fall through before completion.

But there is an accessible and flexible way to avoid chain breaks, in the form of bridging finance. For those able to qualify, bridging loans represent a convenient and cost-effective alternative to watching a potential property purchase fall through at the worst possible time.

Why do property chains break?

Property chains can collapse at any time for a broad range of reasons, which include:

• The seller decides they no longer want to sell their home.
• Buyers are pulling out of their planned purchase decision.
• Mortgage applicants are being denied funding by their lenders.
• Buyers are gazumped by a competing bidder with a higher offer.

Irrespective of the cause of a broken property chain, the consequences remain the same. When the sale of your current home suddenly falls through, you find yourself in a position where you can no longer afford to buy your next home.

At this point, you could be forced to watch your dream home slip through your fingers unless you take decisive action.

Bridging loans for chain-break finance

Increasingly, homeowners looking to opt out of perilously fragile property chains altogether are looking into the potential benefits of bridging loans. Bridging finance provides property owners with the opportunity to leverage the value they have tied up in their current home in order to buy their next home for cash.

The loan is then repaid when their previous property sells, effectively ‘bridging’ the gap between buying and selling.

Here is how the facility works in practice:

• A couple looking to relocate currently owns a home with a value of £500,000.
• They find a home they would like to buy in their dream location for £400,000.
• An application for a £400,000 bridging loan is submitted against their current home.
• The lender approves their application, and the funds are transferred within a few days.
• The couple moves into their new home, and their previous home remains on the market.
• A few weeks or months later, when their previous home sells, the loan is repaid in full.
• In the meantime, interest accrues at a rate as low as 0.5% per month.

Bridging finance effectively works like a short-term mortgage, wherein funds are raised against the value of the borrower’s home and repaid at a later date. What makes the difference with a bridging loan is that the facility can be arranged in a few working days, and the full loan balance is repaid within a few months.

How much can you borrow with chain break bridging finance?

The amount you can borrow will be determined by the equity you have built up in your current home, along with the maximum LTV your lender is willing to offer. Most lenders cap their maximum LTVs at around 80%.

This would mean that if you have £500,000 equity in your home, you would be able to borrow 80% of this, or £400,000. Your general financial circumstances may also be taken into account by your lender, which could influence the maximum loan size you qualify for.

Who is eligible for chain break bridging finance?

As a specialist type of secured loan, eligibility for chain-break bridging finance is determined largely on the basis of available security. If you have established sufficient equity in your current home (or have other assets of value you could use as security), you have a high chance of qualifying.

This applies even if you have imperfect credit or cannot provide comprehensive proof of income, as many specialist lenders are willing to work with ‘subprime’ applicants.

Even so, it is advisable to consult with an independent broker to discuss both your eligibility and the options available before applying. Your broker will be able to pair your requirements with an appropriate lender to ensure you get an unbeatable deal while advising on the alternative options available where applicable.