Market Financial Solutions are a bridging loan and buy-to-let mortgage provider and are not legal, financial, investment or tax advisers. This document is for informational purposes only and does not, and should not be considered, to constitute legal, financial, investment or tax advice or be relied upon by any person to make a legal, financial, investment or tax decision. Therefore, Investors are encouraged to seek appropriate professional advice. The information in this content is correct at time of writing.
In the last few years property chains have lengthened and regularly, borrowers are affected by broken property chains[1]. Panic sets in, stress level rises, the deal is about to fall through. But there is a no-panic solution to save the day: a chain break bridging loan.
What is a property chain?
A property chain refers to the number of buyers that are dependent on one another’s property transactions. For example, a property chain exists if one owns a property already, but needs the funds from the sale to finance another property. On the other hand, a buyer might be dependent on a sale of their property.
The longer the housing chain, the greater the risk that a property chain breaks. This could put an investment at risk of collapsing.
Top 5 reasons why a property chain breaks
Reason No 1: Sale not completed on time & it falls through
Mainstream finance can take up to six weeks to process, or even longer during tough economic periods[2]. Property investors do not usually have this much time to complete on a deal that may not stick around for long.
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 complete on their purchase.
Reason No 2: The buyer pulls out
Sometimes, buyers pull out. This could be due to a funding issue, finding a more suitable property elsewhere, or maybe they’ve had concerns they aren’t willing to ignore. Whatever their reason, it can put investors in a compromising position.
Reason No 3: Issue with funds
Arranging traditional finance has a lot of boxes that need ticking before one can move forward. During this process, minor discrepancies can create issues for mainstream lenders. This could draw the process to a halt whilst everything is being checked over.
Reason No 4: Person cannot buy an owner’s place and they’re stuck
If there is an issue with the property, then the owner may need to renovate or make a property conversion to entice new buyers. This can be a long process and can add pressure.
Reason No 5: Gazumping
The seller of an investor’s desired property might accept a higher offer, even after a sale has already been agreed. Unless the investor wants to up their offer and possibly enter a bidding war, the property would go to the other bidder.
How to minimise the risk of a property chain breaking
Here are a few things one can do to help minimise the risk of a broken chain:
- Arrange finance in advance: This will allow a borrower to continue with their property purchase without the worry that the lender may pull out.
- Communication is key: Make sure everyone involved is actively communicating with each other. This includes the estate agent and solicitor, as well as the buyer’s and seller’s teams too.
- Speak up: If one is worried about an issue, they should discuss it with their solicitor straight away. The more time they have, the less likely it will affect the exchange of contracts or completion.
- Timeframe: Asking for an initial timeframe at the beginning of the process can give investors 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.
The solution to chain breaks: bridging loans
If a property chain breaks, investors should not panic. There are alternative, short-term loans available that can help get a purchase over the finishing line.
A chain break bridging loan is an alternative way to finance a property sale if one looking to break free from property chains risks. With this option, an investor won’t need to rely on the sale of a property. On the contrary, they can continue without worry of collapse due to lack of funding, or if a mainstream lender will pull out at the last minute.
Mainstream finance can take months to complete, and lenders can refuse to offer support at all, leaving investors stranded. With our chain break bridging loans, investors can borrow up to £65m+ in as little as a few days.
Whether our borrowers are looking for a residential chain break bridging loan, auction finance, commercial chain break bridging loan, or refinancing options, Market Financial Solutions’ bridging finance can offer short-term solutions until they’re able to figure out their long-term options.
Alternative finance also allows lenders like us to take a step back and view the overall picture. Our application process is done on a case-by-case basis. This allows us to lend on complex cases or applicants who have special circumstances such as adverse credit.
There are many ways to exit our loans, and our underwriters will support our borrowers throughout the entire process. Contact our team today.
As is clear, there is no need to panic when a property chain breaks. A chain break bridging loan can secure a purchase, even in complicated circumstances.
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[1] https://todaysconveyancer.co.uk/making-upfront-information-work-full-property-chain/
[2] https://www.mortgageable.co.uk/first-time-buyer/how-long-does-a-mortgage-application-take-to-be-approved/#:~:text=Key%20Takeaways%20on%20your%20Mortgage%20Application%20Timeline,-A%20mortgage%20in&text=Typically%2C%20mortgage%20approval%20takes%20between,remains%20valid%20for%206%20months.
