Being stuck in a property chain can be a hugely frustrating and expensive experience, leaving you waiting on other people’s decisions before you can make your own.
Bridging loans are a common solution for people who want to break free of their property chains, allowing them to make the most of market opportunities on their own terms. One way to think of them is as a temporary funding option until longer-term finance or a sale has been secured.
A property chain occurs when several property transactions are linked, with each one dependent on another. Each buyer or seller involved in the chain is waiting for another transaction to complete before they can proceed with their own. For every transaction to work they usually need to complete at the same time. However, long delays or a collapse in the chain can occur even if only one chain link falls through.
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Bridging loans allow you to borrow money for a set period, usually between 3-12 months. The loan is secured against a property you own (usually the one the money is being used for) and repaid at the end of the term.
There are three key elements of a bridging loan:
Lenders generally retain the full amount of interest for the loan term, which usually means you do not have to make monthly repayments during this period.
Using a bridging loan to break a property chain can offer:
To give you a better idea of how a bridging loan could work in practice, here is an example scenario.
This means that the total security available for the loan would be £1.200,000 (covering both properties).
If the borrower finds a lender that offers a maximum loan at 75% loan-to-value (LTV), this equals:
Let’s assume the loan terms offered by the lender are:
This would make the costs for the loan:
The full breakdown of the loan would then be:
The net loan (the amount received by the borrower) would then come to £793,800.
From this, the existing mortgage of £150,000 must be repaid.
This would allow the borrower to put a total of £643,800 towards the new purchase.
Any shortfall would need to be covered through savings or additional borrowing (for example, family support).
Breaking a property chain is a strategic move that can help you have more control over the buying and selling process. Here are few important factors to take into consideration before you get started:
With a bridging loan, the lender usually deducts up to 12 months’ worth of interest. However, if you repay the loan early (after 8 months, for example) the unused interest is usually deducted from the final payment figure. This means you only end up paying for the loan whilst it is in use, although this depends on the individual lender terms.
When you use a bridging loan to break a chain, there will be a point when you own two properties. This will usually mean that you will be required to pay the higher rate of Stamp Duty Land Tax (SDLT). However, you may be able to reclaim the additional stamp duty if you manage to sell your previous property in the required timeframe.
With potential SDLT fees and interest being added to the loan, you may be required to cover:
Before signing a bridging loan agreement, be sure to check for any additional fees or charges associated with the loan. The lender should provide you with a full breakdown of the costs involved.
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A property chain usually lasts anywhere between 8-16 weeks (sometimes longer) and even then, there is no guarantee of completion. If the chain collapses, you and everyone else on it is forced back to square one.
Bridging loans can offer a fast and flexible solution so you can break free of the chain, buy your ideal home and sell your existing property with less stress.
The Willows team can compare hundreds of bridging loans deals to find the best one to suit you. No matter how complex your situation, we’ll guide you through the process and give you the support you need.
Call us on 01656 766 158 and let us know what we can do to help.
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At Willows Finance Ltd, we appreciate that your privacy is extremely important to you. With this in mind, we have put in place a number of measures to ensure that any personal details we obtain from you as a result of visiting this website is processed and maintained in accordance with accepted principles of good information handling and also in accordance with the Data Protection Act 1988.
This statement provides you with details of the type of information we may hold about you, how we obtain and use information and how we protect your privacy.
Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Authorised and regulated by the Financial Conduct Authority
Firm Reference Number: 670052
Company Number: 6678545 (Registered in England and Wales)
This document outlines the services we provide. If you need clarification, please contact us at 01656 766158.
We offer first and second charge regulated mortgage contracts for business or personal use.
Other finance options may include:
Regulatory Status:
We offer an advised mortgage broking service and provide enough information for you to make an informed decision.
We are not independent financial advisers. Free debt advice is available from the Money Advice Service.
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Lenders may also have their own privacy policies which will be provided to you.
We charge a broker fee upon loan completion. The average fee is approximately 5%, depending on your situation.
Fee details:
No refund is offered after completion. You may pay upfront or add the fee to your mortgage. Fees and commission will be detailed in your ESIS and Mortgage Agreement.
You will receive a Mortgage Agreement and an ESIS document detailing:
You may cancel your application anytime before completion without any charge. Mortgages cannot be cancelled after completion.
Missing payments can lead to charges, repossession, and negative impacts on your credit rating.
Consolidating debt may result in higher long-term interest. Securing debt against your home increases risk.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loan secured on it.
If you wish to complain, contact us at:
Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Tel: 01656 766158
You may be able to refer your complaint to the Financial Ombudsman Service.
We are covered by the FSCS. You may be eligible for compensation of up to £85,000 per person per firm for mortgage advice and arranging.
More info: www.fscs.org.uk
After processing your application, you’ll receive a Mortgage Agreement and have a 7-day reflection period.
Contact us during this period with any questions. To proceed, sign and return the agreement.
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