Property chains are a common problem in the UK property market.
Stuck in a chain, watching your dream home slip away while waiting for other sales to complete is incredibly stressful.
Bridging finance could be one answer to this problem, allowing you to move forward with your purchase while you sell your existing property properly.
What Is A Property Chain
A property chain is a series of linked house sales.
You’re selling your home to someone while buying another property yourself. Your buyer might be selling their home too, and so on.
When one sale falls through it affects everyone – like dominoes.
UK property market statistics show one in three transactions fall through before completion. They collapse for many reasons: buyers pull out due to changed circumstances, mortgage problems arise, surveys reveal hidden defects, or sellers accept higher offers from other buyers.
When a chain breaks it’s not just stress and frustration.
You might lose your dream home, waste money on surveys and legal fees and have to start your property search from scratch.
That’s where bridging finance can help.
Understanding Equity and Deposits
When you’re moving home, understanding how your current property’s equity can help with your next purchase makes a big difference.
Here’s what you need to know.
What Is Equity?
Put simply, equity is the amount of your property that you own outright. It’s the difference between your property’s current value and the amount you owe on your mortgage.
Let’s use some real numbers:
- Your home is worth: £500,000
- Your mortgage balance: £200,000
- Your equity: £300,000
Your equity has likely grown from two sources:
- Your monthly mortgage payments reducing the loan amount
- Any increase in your property’s value since you bought it
Using Equity For Your Next Purchase
When moving home, you normally use your £300,000 equity as a deposit on your next property.
New property:
- Purchase price: £700,000
- Equity deposit £300,000
- You need a new mortgage of £400,000
In a situation where the property chain has broken down, your £300,000 equity is trapped, preventing you from being able to pay for the new home.
What Is Bridging Finance?
A bridging loan is short term property finance that allows you to buy your new home before you sell your existing one.
They are similar to mortgages in the respect that they are secured against property or land.
But they are always short-term in nature. If used when moving home, a ‘regulated bridging loan‘ can only last up to 12 months before it must be repaid.
Interest is charged monthly and the rates are much higher than a mortgage.
Most UK bridging lenders will lend up to 75% of the property value, some more if additional security is available. You can borrow from £150,000 to several million depending on the properties involved.
Speed and flexibility is what sets bridging loans apart from standard mortgages.
While mortgage applications can take 8-12 weeks, bridging finance can complete in 5-10 days – when you need to act fast to secure a property.
Read more: A Guide to Bridging Loans
Get access to expert brokers and specialist bridging lenders
How To Break A Chain
Let’s take an example: You’ve found your perfect home for £700,000 but you need to sell your current £500,000 property to buy it.
Your buyer has mortgage problems and you’re worried about losing your dream home.
A bridging loan could lend you the money to buy your new home. The lender would take a first charge against your new home, and a second charge against your current home.
This allows you to sell your existing property at your own pace without rushing or accepting a lower price.
Once your sale completes you’d use those funds to repay that part of the bridging loan. Then use a residential mortgage on your new home to pay off the other part.
Bridging Finance Costs
Bridging finance is more expensive than a standard mortgage but the benefits can outweigh the costs when you need to secure a specific property or break a chain.
The main costs are arrangement fees (2% of the loan amount), valuation costs (£500+) and legal fees for your solicitor and the lender’s solicitor ( £1,000-£2,000 combined).
Read more: Are bridging loans expensive?
There Are No Monthly Payments
Although the loan interest is charged monthly, there’s no requirement to make any payments. Most lenders are happy to ‘roll-up’ the interest (add it to the loan) and you then repay everything at the end.
Benefits of Bridging Finance
Bridging finance puts you in charge and gives you flexibility when dealing with property chains.
You can take your time finding the right buyer at the right price for your existing home rather than accepting a lower offer just to keep the chain moving.
When you’ve found your perfect home you won’t lose it because of problems elsewhere in the chain. This is especially important in rising markets where prices increase while you wait.
You’ll also have more bargaining power.
Being chain free makes you a more attractive buyer and potentially helps you get a better purchase price. Plus most bridging loans allow early repayment without penalties so you have flexibility when your property sells.
Key Points to Consider
Before you choose bridging finance you’ll need a solid plan to repay the loan – known as your exit strategy.
This will usually be either selling your existing property or refinancing to a standard mortgage. Your lender will want to see evidence that this strategy is realistic and achievable within the loan term.
Property type also affects your application.
Standard construction houses and flats in good condition and saleable locations work best. Lenders will be more cautious with non-standard construction properties, properties that need major renovation or very rural locations.
Think about timing and back up plans.
How long will your property take to sell? Can you manage interest payments if you choose to pay interest? What are your alternatives if your main exit strategy takes longer than expected?
Read more: What Properties Can A Bridging Loan Be Secured Against?
How To Apply
The application process is much faster than a standard mortgage but proper preparation makes everything smoother.
Your broker or lender will need several key documents: recent bank statements, ID and address proof, details of both properties and clear exit strategy.
For property sales you’ll strengthen your application by providing your estate agent’s marketing report, details of any offers and their estimate of the selling timeframe. This helps the lender understand your exit strategy better.
Most bridging loans complete within 2-3 weeks. Week 1 is initial discussions, agreement in principle and valuations. Week 2 is valuations and legal work and week 3 is legal work and final checks.
Some lenders can move even faster if needed and can complete in 5 days if everything is in place. However complex cases may take longer especially if the property is unusual or the legal work is complicated.
Read more: Who Can Get a Bridging Loan?
Working with Lenders
Bridging finance is a specialist market and lenders often focus on different areas. Some are better at chain breaking, others at speed or competitive rates.
The key is finding one that suits your needs.
Experience with similar cases, competitive pricing, quick decision making and clear communication all matter when choosing a lender.
Most borrowers work with specialist brokers because they know the lenders’ preferences and can match you with the right one for your situation.
Brokers also help by:
- Accessing rates not available directly
- Speeding up the application process
- Managing paperwork and coordination between parties
- Solving problems that arise during the process
Next Steps
If bridging finance sounds like it can solve your property chain problems start by reviewing your finances carefully.
Understand all the costs involved and how you’ll manage them. Think about realistic selling times for your current property and potential back up plans.
Talking to a specialist broker will help you understand if bridging finance is for you. They’ll assess your situation, find suitable lenders and guide you through the process and get you the best rates.
Remember bridging finance breaks property chains but it’s not for everyone.
Frequently Asked Questions
Our bridging loans start from £150,000, though some specialist lenders might consider smaller amounts.
It’s possible to complete a bridging loan in 5-10 days. If funds are needed sooner than this then your broker can find an alternative lender.
Read more: How quickly can you get a bridging loan?
Not necessarily. While good credit helps, bridging lenders are more interested in your property’s value and exit strategy than credit history.
Read more: Can you get a bridging loan with bad credit?
Yes, this could be an option.
Refinancing onto a buy-to-let mortgage can work as an exit strategy, provided you meet the lender’s criteria.
If there’s enough time it will be cheaper to opt for a let-to-buy mortgage. Here your broker combines a buy to let remortgage with a residential purchase mortgage, one for each property.
Generally yes. Most bridging lenders allow early repayment without penalties, but check specific terms with your lender.
The maximum term for a regulated bridging loan is 12 months. These loans are associated with your main residence and are regulated by the FCA.
Read more: How Long Can You Have a Bridging Loan For?
While not required, a broker can access better rates, match you with suitable lenders, and manage the application process.
