And what happens if the sale of your current home falls through at the last moment? What if the buyer you lined up suddenly has to pull out because their buyer changed their mind at the eleventh hour?
Property chains are long, complex and inherently fragile. Just a single broken link is all it takes for the whole thing to come crashing down. In an ideal world, there would be a stopgap solution available making it possible to buy your next home first and sell your previous home later; a simple and affordable way to bridge the gap between buying and selling, enabling you to opt out of the traditional property chain entirely.
Bridging Loans To Escape Property Chains
This is where a short-term bridging loan can be worth its weight in gold. As the name suggests, bridging finance is used to ‘bridge’ temporary financial gaps like these. Here is how bridging finance could be used to escape a property chain, in a typical buying and selling scenario:
- You put your property up for sale and wait for offers to begin rolling in
- In the meantime, you begin searching for your next home as normal
- You find your dream property at a price you can afford, but you have not yet found a buyer for your current home
- Rather than missing out, you take out a bridging loan against the equity you have in your current home
- This subsequently gives you the spending power of a cash buyer, enabling you to buy your next home and beat competing bidders to the punch
- You move into your new home and your previous home stays on the market until it sells for the best possible price
- At which point, you use the funds raised by the sale to repay the bridging loan, and the transaction is complete.
Bridging finance differs from conventional loans and mortgages in that it is designed specifically for these kinds of purposes. Each loan is arranged and negotiated as a bespoke facility, but will typically share the following features and benefits:
- Loans available from £50,000 to more than £10 million
- Monthly interest as low as 0.5%
- No exit fees are payable and early repayment is possible
- Loans are arranged and accessed within a few working days
- Flexible repayment terms of one to 18 months
- Subprime loans available for applicants with poor credit
- No proof of income or employment status is necessary
- Borrow up to 75% LTV (sometimes more in special cases)
The speed and simplicity of a bridging loan make it the perfect tool for escaping the traditional property chain. Charged at a monthly rate of around 0.5%, bridging finance can be uniquely cost-effective when repaid promptly.
Even with all additional borrowing costs factored in, it all adds up to a small price to pay to prevent your dream home from slipping through your fingertips at an unbeatable price.