Chain Break Bridging Loan

How a chain break bridging loan can save your property purchase

When you find the right home, you do not want a broken property chain to ruin everything. Yet buyers pull out, mortgage offers get delayed and sometimes people simply change their minds. This can cause the process to be very stressful.

A chain break bridging loan can give you a way forward. It gives you short term funding so you can still buy your new home even if your sale has fallen through or been delayed. You avoid losing the property and gain time to sort out your long term finance.

bridging loans are not suitable for everyone so you should always take professional advice to assess whether they are the correct solution for you.

What is a chain break bridging loan

A chain break bridging loan is a short term loan used when a property chain collapses or stalls. It is designed to bridge the gap between buying your new property and receiving the funds from the sale of your existing home.

You borrow money for a short period so you can complete your purchase on time. Once your current property sells or you arrange longer term finance, you repay the bridging loan in full.

You might consider a chain break bridging loan if:

• Your buyer pulls out close to exchange or completion
• Your buyer cannot get their mortgage approved in time
• Someone else in the chain has a delay that puts your purchase at risk
• You want to act quickly on a new property before your current one sells

The bridging loan effectively allows you to move ahead as if you were a cash buyer.

How a chain break bridging loan works in practice

Although every case is different, the basic process usually follows a similar pattern.

Security for the loan

The bridging loan is secured against property you own. This is normally your current home, but sometimes it can be secured on the new property or on more than one property.

The lender will consider:

• The value of the property or properties
• The size of the loan compared with that value
• Your plans for repaying the loan

Because the loan is secured, there is a real risk to your property if you cannot repay. That is why a clear and realistic plan is essential to make sure you are not stuck with the loan.

Accessing the funds

One of the main appeals of bridging finance is speed. Once everything is agreed, funds can often be released within a few weeks, sometimes sooner. This is usually much quicker than a standard mortgage.

When the funds are released, you can:

• Complete the purchase of your new home
• Pay any associated costs such as stamp duty and legal fees, if required
• Move on with your plans without waiting for your buyer

You effectively become a cash buyer, which can strengthen your position with the seller and estate agent.

Repayment and exit strategy

Bridging loans are designed as short term borrowing. Typical terms run from around three to twelve months, although some lenders may offer longer.

You must have a clear exit strategy before the loan is agreed. Common options include:

• Selling your existing property and using the sale proceeds to repay the loan
• Remortgaging onto a standard mortgage once things have settled
• A combination of sale and remortgage where you want to keep both properties

Lenders will look closely at your exit plan. They want to see that the timescales are realistic and that the figures add up.

Key benefits of a chain break bridging loan

A chain break bridging loan is not right for everyone, but in the right situation it can be extremely helpful.

Helps you secure your new home

The biggest benefit is simple. You can still buy the property you want, even after a chain collapse. You avoid losing money already spent on surveys, searches and legal work. More importantly, you still secure your new home.

Speed and flexibility

Bridging finance is usually quicker to arrange than a traditional mortgage. This speed is important when:

• The seller wants to complete quickly
• You are working to a tight deadline from the chain
• You are buying at auction and need funds within a short timeframe

There can be flexibility too. Lenders can sometimes work with complex income, unusual properties or multiple security properties in ways that standard mortgage lenders might not, although be careful that you qualify for the next mortgage should you be taking one.

Greater control and less uncertainty

A chain break bridging loan lets you take control of your timeline. Instead of waiting for others in the chain to sort out their issues, you can move into your new home and then concentrate on selling your old one at a more sensible pace.

That can reduce stress and give you more flexibility around marketing, viewings and negotiation on your sale, so may even result in a higher sale price. The cost of the interest needs to be taken into account though.

Important risks and considerations

Every financial solution has downsides. It is important you understand the risks as well as the advantages.

Cost of a bridging loan

Bridging loans are more expensive than standard residential mortgages. You should expect:

• Higher interest rates than a typical mortgage
• Arrangement and lender fees
• Valuation and legal costs

Interest may be paid monthly or added to the loan and settled at the end. The total cost depends on the interest rate, the fees and how long you need the loan for.

As a result, they are not suitable for all borrowers, so professional advice is strongly recommended.

Risk to your property

Because the loan is secured against property, there is a real risk involved. If you do not keep to the repayment terms, your property could be at risk of repossession.

This is why:

• Your exit plan must be realistic
• You need a sensible timeframe
• You should always build in a bit of breathing space

Specialist advice can help you judge whether the level of risk feels acceptable for your circumstances.

The importance of a strong exit strategy

Your exit strategy is the foundation of the whole arrangement. Common problems include:

• Over optimistic sale prices
• Unrealistic assumptions about how quickly your property will sell
• Ignoring potential changes in interest rates or market conditions

Discuss your plans with a professional so they can assess whether thry sound realistic, to best alleviate issues later on.

When might a chain break bridging loan be right for you

A chain break bridging loan can be helpful in several situations.

You might find it suitable if:

• You have found a property that is ideal for your needs and rare in the market
• You have already spent significant money on surveys and legal work
• Your income and credit profile are strong enough for bridging finance
• You have clear equity in your current property to use as security
• You are comfortable with short term higher costs in return for saving the purchase

On the other hand, it may be less suitable if:

• You are already stretched with existing borrowing
• Your current property is likely to be hard to sell
• You feel uncomfortable with a higher risk strategy

An honest conversation with a broker who understands both mortgages and protection will help you weigh this up.

Common questions about chain break bridging loans

Can a chain break bridging loan really save my purchase

In many cases yes. If the figures stack up and your exit strategy is realistic, a bridging loan can provide the funds you need to complete on time even after a buyer pulls out.

How fast can a chain break bridging loan be arranged

It depends on your case, but bridging is usually much quicker than a standard mortgage. With the right preparation and a responsive lender, funds can sometimes be released within weeks, which is often enough to keep your purchase on track.

Will a chain break bridging loan affect my future mortgage

A well planned bridging loan with a clear exit strategy should not stop you getting a future mortgage. In fact moving on to a standard mortgage is often part of the plan. However, if you miss payments or struggle with the borrowing, this could affect your credit profile, so careful planning is vital.

Do I have to use my current home as security

Not always. Some lenders will consider securing the loan on the new property or on multiple properties. The best structure for you will depend on your assets, your income and your long term plans.

Conclusion

A broken property chain can feel like a disaster. You face the risk of losing your new home, wasting money already spent and going back to square one with your search. It is stressful and frustrating.

A chain break bridging loan offers a possible way through. It allows you to access short term funding, complete your purchase on time and then repay the loan once your existing property sells or your long term mortgage is in place.

This type of finance comes with higher costs and real risks, so it is not a decision to take lightly.

You need a strong exit strategy, realistic assumptions and advisers who will tell you honestly whether it is the right move.

That is where Kerr and Watson can help. With expertise in both mortgages and protection and strong relationships with lenders, you receive clear guidance tailored to you.

Contact Kerr and Watson to discuss your options.