Stuck In A Property Chain
If you are stuck in a property chain you probably feel stressed and powerless to do anything.
Property chains collapsing are a common feature of the perils of buying and selling property in the UK creating frustration for all involved. So is there anything you can do to break out of the chain?
3 things you could consider to break the chain:
- selling your current home 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?
Consider going into rented accommodation before you buy.
Ok it is a lot of hassle but the big advantage of selling your home and moving into rented accommodation is that you will be in a much better position to move quickly. You are in a much better position to negotiate with a house seller.
Moving into rented accommodation does however take 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.
Not selling your home but increasing your existing mortgage to use as deposit on the new property
Another option that may be open to you if you have equity in your current home is to increase the mortgage and use the released capital raised as a deposit on a second property. So in this scenario you could either :
- Do a “Let to Buy” – 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
- Or you run two mortgages for a period of time until you sell your first property in your own time. This buys time to sell your first property. The downside of course is you will need to pay for two mortgages. Lenders will want to know you can afford to service the debt on two mortgages so this option may not be possible – speak to our mortgage team to discuss your options here.
Taking out a bridging loan
If you are stuck in a property chain with the person looking to buy your home unable to proceed then a bridging loan could be the solution. This form of short term finance which bridges the gap in funds between the sale of your current house and the purchase of your new one.
A bridging loan can provide temporary funding you need, quickly – typically it is 1 to 12 month finance. While bridging finance may not always be the cheapest way to borrow money, it is very convenient.
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 quick to put in place compared to say mortgage finance which can take 2 to 3 months. Bridging finance can be arranged in anything from 3 to 14 days depending on the complexity of the case.
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 and the security you are providing.
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. Additional fees will include valuation and solicitor fees.
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).
In summary, if you are stuck in a property chain which is not going anywhere fast and you need to get a move on then a bridging loan may be the solution. Alternatively you could consider moving into rented accommodation or look at a second mortgage depending on your personal circumstances.
To discuss your finance options call our mortgage and bridging team on 0117 403 4474