How to break a property chain with a Bridging Loan
Anyone who has lost the house they really wanted to buy due to the property chain collapsing will know the upset that results. Not to mention the lost of money used for legal costs, application fees, and other expenses.
It is possible for this to be avoided by using a bridging loan to prevent the property chain collapsing.
In an ideal world, house buyers and sellers would not be reliant on other people’s sales and purchases in order for them to move into their dream home. In the real world, that is exactly what happens.
In order for you to buy the house you want, you are probably reliant on someone else buying your existing home. In turn, they are reliant on someone buying their home. The chains can get quite long, and complicated. Especially when each person in the chain may have their own mortgage applications that all need to be ready to action at the same time.
One of the best things that can happen in this situation is to be a cash buyer. Someone who is not reliant on a sale before they can buy. They can decide quickly on what house they want and, more importantly, start and finish the sales process quickly. Unfortunately, cash buyers are not as common as some agents would lead you to believe, if you find one you should consider your self fortunate.
But what if there was a way of enjoying the benefits of being a cash buyer without actually being one?
A bridging loan could present a possible way of breaking the property chain for you.
A bridging loan is essentially a fast, short term method of advancing you the money you need to purchase the house you want, before you have sold your own property. It effectively makes you a cash buyer and as such you can unblock any property chain that has become bogged down in the wait for the first sale to go through so that all the others can follow. Once your property is sold, then you can repay the bridging loan in full.
Having the money available for your intended purchase makes you an attractive buyer to any seller. It is even possible that it will put you in a better negotiating position regarding the purchase price.
The three steps to breaking the property chain
- The first step is the application.
A proposal showing exactly what it is you want to do, how much you need, and how long for, needs to be written and sent to your intended lender. This will show the details of the property you wish to buy, including the purchase price, type of property, and the location. The amount you will need might well be the full amount of the purchase price but it will be governed by the value of the security you are able to put up and any cash you have that can form part of the deal. Obviously, you will need to have the full purchase price available to you in order to proceed with the purchase.
Before making any application, you will be best advised to talk with a professional broker who can talk you through the best way to present your proposal. As you will be unlikely to know the date on which you will be selling your property in order to repay the loan, you are most like to apply for an open bridging loan. This means that there is no fixed date by which you have to repay the loan. However, the terms and conditions from the lender will always include details of the maximum length of time you can have the loan before penalties start being charged.
At the application stage you will also decide upon your preferred method of dealing with the interest. This can be the standard interest repayments made during the term of the loan, or the rolling up of the interest in order for the initial loan plus all the accrued interest being paid in one lump at the end. - The second step is the approval of the application.
After the lender is satisfied about the viability of the loan, and the agreement to release funds to your solicitor. After your initial application, it is common for a lender to ask further questions or want clarification on certain points. They are very experienced at turning these applications around quickly and the faster you can provide them with the information they have asked for, the faster you can get to the point of having the funds available. It is quite usual for it to take about a week from initial application to the release of funds. - The final element is the repayment of the loan.
This is usually completed upon the sale of the property on which the loan has been secured. Although in practice, the funds can actually come from anywhere. The interest charged on a bridging loan is higher than that on a conventional mortgage and it is usually charged monthly. This means that costs can rise quickly and it is very much in your interest to sell you property in as timely manner as possible.
