How To Break A Property Chain
If you are in a housing or property chain and it breaks down it can be very stressful.
Reasons for a chain collapsing down can be down to a whole host of reasons including people in the chain who struggle to get finance in place at the last minute through to survey issues with properties that result in offers being reduced which takes the chain back to square one etc
So you can either sit tight and hope things work out or you can consider taking action.
So what can you do about it?
There are 3 main ways in which you can break a housing chain:
- Selling before you buy
- Not selling your home but increasing your existing mortgage to use as deposit on the new property
- Getting a bridging loan
Selling before you buy?
You may want to consider going into rented accommodation before you buy.
This on the surface seems like a simple option but the reality is it is often not. Moving into a new house takes time and money. Most landlords will want at least a 6 month commitment if not 12 months. There may be a suitable rental property available for you to rent but if there is not this may have implications on commuting to work, schools if applicable, access to amenities and if the property is not big enough you may have to consider storage options which can be expensive.
The advantage of selling your home and moving into rented accommodation is that you will be in a much better position to move quickly when you find your next house.
Not selling your home but increasing your existing mortgage to use as deposit on the new property
Another option if you have enough equity in your current home is to increase the mortgage and use the capital raised as a deposit on the second property. You could either:
- Do what is known as a “Let to Buy” – this is where you let out your existing home to tenants and use the rent to pay the mortgage. The additional capital raised on the mortgage can be used as a deposit on your new home where you take out a second mortgage
- Alternatively you don’t let out the property and you run two mortgages for a period of time until you sell your first property in your own time. This buys time to ensure you get the price you want. The downside is the cost of servicing two mortgages.
In both scenarios mortgage lenders will want to know you can service the debt on two mortgages so this option may not be possible – speak to our mortgage team to discuss your options here.
For more information on let to buy mortgages call our team on 0117 313 7780
Getting a bridging loan
Bridging loans are primarily used in the purchase of commercial and residential property. This form of short term finance does what it says on the tin – it bridges a gap in funds between when a debt becomes due and when you’ll have the monies to repay that debt.
So if you are in a property chain and need the money from the sale of your home in order to fund the purchase of your next one – but there has been a delay down the chain and you could lose your dream home if you don’t complete the buying transaction now
A bridging loan could give you the temporary funding you need, quickly. Compared to some other forms of finance bridging loans may not always be the cheapest way to borrow money, it is very convenient. You also need to take in to account what you stand to lose in terms of an already paid deposit if your existing purchase falls through due to lack of funding,
How do bridging loans work?
As mentioned before, bridging finance offers a short-term loan solution (typically lasting up to 12 months until a more permanent form of funding becomes available (e.g. a mortgage).
It is generally much faster to arrange than a more traditional loan, with some providers considering your application and, if approved, putting the money in to your bank account in less than a week.
As with the more traditional forms of lending associated with property, the finance is secured against the property, so it is important that you fully understand the agreement you have as well the cost of the interest and any associated fees.
What does it cost?
The cost of the bridging finance will depend on the individual provider as well as how much you wish to borrow.
Bridging loans are typically charged on a monthly basis - normally in the range of 0.6% to 2% per month depending on the loan criteria (which, in some cases, is higher than other forms of medium and longer term borrowing).
You’ll also be charged an arrangement fee as well (typically from 0.66% - 1.50% of the loan value).
In some cases you may be able to ‘roll up’ your interest - meaning you don’t have to pay it every month but instead pay the amount at the end of the arrangement. Alternatively, you may be able to ‘retain’ the interest from the loan amount in advance, to cover the interest payments. Do note that interest will still be charged on this retained amount.
How much can I borrow?
This depends on your own unique financial circumstances, but you can generally borrow from £30,000 upwards depending on the equity that you have in your property (ies).
For more information on bridging loans call our bridging loan broker team on 0117 313 6058
In summary, if you are looking for immediate short-term finance to help with a property transaction, then turning to an alternative finance offering such as a bridgingloan may offer the most suitable solution for you. Otherwise you could consider moving into rented accommodation or look at a second mortgage depending on your personal circumstances.