Bridging Finance: A Flexible and Affordable Chain-Break Facility

Albert Howard

Bridging Finance: A Flexible and Affordable Chain-Break Facility

Throughout 2022 so far, there has been a major disparity between supply and demand on the UK housing market. Demand for high-quality homes in desirable areas of the country is at an all-time high, but available inventory remains at an all-time low.

According to the latest figures from Propertymark, the average estate agency now has around 84 registered potential buyers, compared to just 22 properties available for purchase.

All of which has resulted in ferocious competition between competing buyers, and a frenzied race to complete mortgage applications on time. With the average mortgage taking as long as 12 weeks to underwrite, there is plenty of time in the interim to be beaten to the punch.

Or perhaps, gazumped at the very last moment by prospective buyers with deeper pockets.

Research from Hamptons suggests that in order to avoid becoming part of the conventional property chain, more people are purchasing properties with cash than ever before. For 2022 to date, an astonishing 73% of buyers purchased homes chain-free.

The appeal of purchasing a home for cash lies in the speed and simplicity of the transaction. You bid on a property, your offer is accepted, and you pay the full balance outright. The transaction is formalised in days and the property is yours – no risk of being outbid, or beaten to the punch.

But as purchasing homes for cash has traditionally been restricted to wealthier buyers, the mainstream homebuying market has been left out of the running.

The Appeal of Chain-Breaking with Bridging Finance

As an added bonus, those who purchase properties outright for cash are typically afforded preferential prices. On average, the price of a chain-free property purchase is around 2.5% lower than a more conventional property purchase.

Given the current average UK house price of around £300,000, this is not an insignificant amount of money.

This is where bridging loans have the potential to provide everyday homebuyers with a welcome lifeline. If you have sufficient equity tied up in your current home to cover the costs of your next property purchase, a bridging loan could help you escape the traditional property chain entirely.

Bridging finance is a strictly short-term facility, secured against your current home and available with an LTV of up to 85% (sometimes more). The facility can be arranged and accessed within a few working days, making it just the thing to position yourself at the front of the property purchase queue.

Charged at a monthly rate as low as 0.5%, bridging finance can be hugely cost-effective when repaid promptly.

In practice, you take out a bridging loan against your current home, you use the funds to purchase your next home outright, and you repay the loan in full when your previous home sells. In doing so, you save as much as 2.5% on the total cost of the property purchase, which could comfortably cover the total borrowing costs of the facility.

Bridging finance provides homeowners with the opportunity to opt out of conventional property chains, and to sidestep the potential heartbreak associated with last-minute chain-break scenarios. With the UK’s housing crisis only set to intensify over the coming months and years, the importance of taking prompt and decisive action when looking to purchase a home will likewise grow.

Where waiting weeks (or even months) on end for a traditional mortgage is not an option, bridging finance offers a fast, flexible and far more affordable alternative.