Avoiding a Property Chain Through Bridging Finance

Posted by Market Financial Solutions on 28th October 2021 -

As we’ve all witnessed over the past year, the housing market has been flooded with activity.  

House prices sored as buyers rushed to take advantage of the stamp duty holiday. The latest figures for August 2021 show that the market has been a 10.6% increase over the past year. This sees the average UK property price now stand at £264,000. With the increased activity came:

• Increased property prices
• Demand reached an all-time high – creating a shortage of supply
• An increase in people moving to more rural locations – such as commuter towns

But that’s not all. The increase in buyers on the market held a key, consequential factor. With more homebuyers, property chains were subsequently lengthened. Therefore, increasing risk of the property purchase. We’ve seen many borrowers affected by broken property chains. Often when an overwhelmed lender has had to pull out of a deal previously agreed. But how can you salvage your sale if your property chain breaks down?

Source: Office of National Statistics

What is a property chain?

A property chain relates to the number of buyers that are dependent on one another’s property transaction. For example, a first-time buyer purchasing a new build property will not have a property chain as they are not:

• Dependent on the sale of another property to complete
• Buying a property from another person who is reliant on another lender or seller

The longer the housing chain, the greater the risk of a property chain break. This could put your property transaction at risk of collapsing. Using a form of alternative finance like a bridging loan could see you complete your purchase chain free. How does it do that?

• You will not be relying on the sale of your property
• You can continue without worry of collapse due to lack of funding or should your lender pull out latest minute.

What are the most causes for broken property chains?

1) Sale not completed on time & it falls through

Mainstream finance can take, on average, 3 months to complete. Property investors do not usually have this much time to complete on a deal their looking to purchase.

For property homebuyers, they may need to first sell a property before buying. Should their sale be delayed, they will be unable to use their funds to c complete on their purchase.

2) Buyer pulls out

Sometimes, buyers pull out. This could be due to a funding issue, they find a more subtle property, or maybe they’ve have concerns they aren’t willing to ignore. Whatever their reason, it can put you in a compromising position.

• If you need a breathing space to find a new buyer, or to arrange fast finance to purchase a new investment property.
• Our terms are now available for as long as 21 months. We also do not charge for early repayment, meaning you can repay your loan at a time that works best for you.

3) Issue with funds

Arranging traditional finance has a lot of boxes that need ticking before you can move forward. During this process, minor discrepancies can create issues for mainstream lenders. This could draw your process to a halt whilst everything is being checked over.

• Alternative finance allows lenders like us to take a step back on and view the overall picture. Our application process is done on a case-by-case basis. This us allows us to lend on complex cases or applicants who have special circumstances such as adverse credit.
• You can find out more about who we lend to here.

4) Person cannot buy your place and you’re stuck

If there is an issue with your property, then you may need to renovate or make a property conversion to entice new buyers. This can be a long process and can add pressure for you and your sellers.

If you’re in need of refurbishment funding, then you can click here to read about our permitted and light development bridging loans.

How can I stop my chain from breaking?

Here are some things you can do to help minimise the risk of a broken chain:

• Arrange finance in advance: This will allow you to continue with your property purchase without the worry that the lender may pull out.
• Communication is key: Make sure you’re actively speaking to all those involved. This includes your estate agent and your solicitor, as well as your buyers and sellers’ solicitors too.
• Speak up: If you’re worried about an issue, be sure to discuss this with your solicitor straight away. The more time you have, the less likely this will affect your exchange of contracts or completion.
• Timeframe: Asking for an initial timeframe at the beginning of the process can give you a benchmark date to work with. Of course, things change, and delays can occur. If things look to be moving too slowly however, this could indicate an issue that needs resolving.

How bridging finance can help

Bridging loans are a way to finance your property sale if you’re looking to break free from property chains, minimise the risk or fix a broken chain. Whether you’re looking for a residential bridging loan, auction finance, commercial bridge loan or you’re an overseas investor looking to buy UK property, we can help. Mainstream finance can take months to complete, and lenders can refuse or pull out, leaving you stranded. With MFS, you can borrow up to £30,000,000. There are many ways you can exit a loan, and our directed underwriters will support you throughout the entire process. Unlike a traditional lender, we can provide funds in as little as three days and when we say yes – we mean it.

To contact our team today, click here