Property Chains In A Nutshell
What Is A Property Chain?
You may have heard the term, but thought it sounded more complicated than it is. It is, quite simply, a sequence of linked houses. Each homeowner relies on the person buying their house to release funds for them to buy their next home. If their house sale does not go through, then they will be unable to purchase the next one. As you can see, this creates a chain where one break could cause many others not to be able to go forth with their purchase. So, someone could affect a property exchange of someone that isn’t even in the country.
Why Do Property Sales Take So Long To Complete?
With so many moving parts and so many people needing to take action, it is easy to see why the chain model can create a lot of delay and confusion. Apart from the paperwork, people can also change their minds or struggle to make a final decision at all. Potential problems can arise, such as structural issues brought up by the property survey, which can lead to buyers pulling out and breaking the whole chain. The lack of transparency between different parties in the chain also makes it difficult for the others involved to know what is going on.
Naturally, chain free properties are much more accessible, and the exchange is usually much faster.
Why Do So Many Property Chains Break?
Chains can fail for many reasons. Some include people losing their jobs, not being given the right mortgage or even changing their mind. If you consider all the various steps that are required to go right to complete on a house purchase, it is easy to see why 1 in 3 property purchases fail.
First, the mortgage must be agreed in principle. Then, an offer needs to made and accepted where the property is sold subject to contract. Solicitors must be arranged both sides to mediate the purchase and surveyors will conduct various evaluations. The mortgage must then be finalised, contracts exchanged, and finally, the property is completed.
Any hiccup along this long and tenuous process, requiring agreement from different professionals agree from both sides, puts the completion of a property in jeopardy.
Can A Bridging Loan Be The Solution?
Bridging loans, are a type of loan, typically large in value, that can prevent the failure of a property purchase. Bridging loans are a great option if the buyer of your property pulls out of the deal, a bridging loan can cover the cost of your desired property. They are ideal for those who have equity in a property, but no income, so are less eligible for a mortgage. The money is available in 1-2 weeks and prevents the seller from losing money by reducing the housing price in return for a quick sale.
Bridging loans are usually paid back in 12 months. The lender receives the interest from the loan, and the buyer gets the house that they had their heart set on. The interest from the bridging loan repayments are not due until the sale of your property has gone through. The loans acts as an emergency bandage on the lost buyer, helping everybody in the chain carry on as usual.
Contact us today and discover how a bridging loan can help you.
Case Study 1
Mr & Mrs H were both over 60 & retired. Due to their age & pension incomes, a traditional purchase mortgage wouldn’t be available.
Their house was on the market for £900k (with no mortgage outstanding) & had been for a couple of months. They saw the perfect downsizing property on the market for £600k and had savings of £100k to put towards the purchase. We at Friends Capital, agreed to a bridging loan of £500k to secure the purchase, thus avoiding the need to reduce the price to enable a quick sale.