In many cases, borrowers looking to buy a new property will also be looking to sell one in order to finance the subsequent purchase. Life is not often neat in this respect and the two processes cannot be relied upon to proceed smoothly hand in hand. This conundrum lies at the heart of the dreaded property chain.
It only takes one buyer pulling out, one transaction falling through, one link out of place, for the chain to be broken. And this can happen at any stage of the process. As well as the frustration involved, it can also be very costly as the parties to the transaction will often have incurred substantial fees, on surveys or to solicitors for example.
A bridging loan is a quick and effective solution for clients in this predicament.
Bridging is also a good option where the chain is slow-moving and there is a need or a desire to complete quickly, for example if the move needs to be completed in time to take up a new job or to get started on a refurbishment project.
There is a widespread perception – among customers and many brokers – that this is an expensive option. But this is very often not the case, and there are a number of reasons why a bridging loan can often work out as the most cost-effective solution.
For one thing, the bridging market nowadays is highly competitive and interest rates are much lower than they used to be. It is outdated thinking to exclude the possibility of bridging on grounds of cost. From the client’s perspective, isn’t it at least worth their having the option presented to them, particularly if the alternative is the risk of losing out on a deal they have set their hearts on?
Our newly enhanced ‘Hope Seven 5’ product is tailor-made for this sort of scenario. Available on loans up to 75% LTV, on residential property up to £750,000, and charging just 0.75% per month, it provides a cost-effective means of bridging the gap between completion of a purchase and the sale of an existing property.
Borrowers can use the loans for property purchase in a range of situations including straightforward purchase, or buying at auction, but Hope Seven 5 is particularly useful for repairing a broken chain when buying a property, which remains one of the biggest reasons for purchases falling through.
There are a number of situations where it is vital that a transaction goes through in a timely fashion. One example would be a business moving to new premises to expand their operation. They may need to move to larger premises and install new machinery so that they are able to meet a big order, but they will lose the order if they can’t increase production in time.
It is unrealistic to expect to be able to get the best price for their existing premises in a short time frame, so a bridging loan can help by enabling them to move to the larger premises as quickly as possible and take a bit more time to get a good price for their old premises.
Alternatively, a prospective landlord may want to bring a property into use as an HMO in time for the start of an academic year, for example, in order to be able to supply the student rental market. The timescale to achieve this might require work to start immediately. Again, a bridging loan can provide the finance upfront, without having to wait to sell an existing property.
All in all, bridging finance for chain-breaking should be seen as a first-choice option in the right circumstances, putting the client in charge of delivering to their requirements and meeting their aspirations.