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If you are buying a property but your current property is yet to be sold, you may struggle to be approved for your mortgage. Owning two properties is fine for some but handling this sort of financial commitment can be draining, which is why many turn to bridging loans. A bridging loan is a short-term financial arrangement used to help facilitate the gap between selling one property and purchasing another, effectively offering you a “bridge” between the two and chain breaks are most common use for bridging loans.
While they are often used to bridge the gap between old and new homes, they are finding more use as a way to salvage breaks in a property chain. In fact, according to the latest Bridging Trends report, funding a chain break was the most common reason for using a bridging loan - contributing to 20% of all loans in Q1 of 2021. Although this is down from 23%, it has stayed the most popular use for half a year now.
Managing Director of Impact Specialist Finance, Dale Jannels, is not surprised by funding chain breaks being the most common use for bridging loans. He states that the large number of solicitors trying to complete on the same day ‘inevitably [results] in people pulling out of purchases late on’, causing more people to turn to short-term solutions such as bridging loans.
Much like any other loan, it is important to remember that it is not just free money. There are certainly benefits that come with it, however it is important to understand whether it is right for you.
If you are in a position where your property chain has broken, you will most likely be looking for a very quick solution; in this sense, bridging loans can provide you with answers in a fraction of the time to a normal mortgage application. In addition to that, loans can often be paid off early without penalty although this is not always the case. It is important to check these things before signing any agreement.
Despite their practicality, there are - naturally - some caveats that are worth being aware of. The most notable of which is the interest rates. Most bridging loans charge a 1-1.5% month interest rate, which works out to 13-19% APR, whereas most mortgages will average a 5% APR.
Many bridging loans also come with extra fees; these can vary from broker fees, paying for valuations and can often include legal fees.
Before you take out a loan (any loan, whether it is a 30 year mortgage or a short-term bridging loan), you need to know that you will be able to pay it off when you need to as even a short term loan has to be paid off on time.
With that in mind, if you are in a difficult situation regarding your chain breaking and find yourself caught in two properties, you always have the option to sell your house fast to a home buying service such as Spring.
Spring, as the largest home buyer in the UK, have over a decade of experience with broken chains and helping people through their difficult moving situations. Our service provides a simple and cost effective solution that means we buy any house and you have the proceeds in your account in as little as seven days. Get in touch today and we will help you make your move happen in a time frame that suits you.
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