Chain Break Bridging Loan
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Richard Grigg
Job Title: Mortgage and Protection Adviser
Mortgage advice professional
Moving home can be stressful enough without the worry of a property chain breaking at the last minute. If your buyer pulls out or your sale slows down, it is easy to feel stuck. Our team is here to help you understand your options and keep your house move on track.
To make things clear, we have put together answers to the questions we get asked most often by our clients. You can learn how bridging loans work in plain English, how quickly they can be arranged, and how you can use the equity in your properties to cover everything from your new deposit to stamp duty and legal fees.
What is a chain break bridging loan?
A chain break bridging loan is simply another term for a regular bridging loan. It allows you to utilise the equity in your existing property and the property you are looking to purchase, funding that money over a period of up to 12 months, with no monthly repayments, on an interest-only basis.
The interest is ‘rolled up’ into the loan – which means it is added to the loan month on month over that period, up to a maximum of 12 months.
The benefit of a chain break bridging loan is that it is not based on your income or your expenditure. It is based on the Loan to Value and the property security that it is being secured against. This allows you to keep your existing mortgage in the background and not have to make two sets of mortgage payments while you wait for that property to sell.
How can a bridging loan stop my property purchase falling through?
It allows you to buy your new home using a deposit and an additional bridging loan. This bridges the gap until your home sells. It ensures that you remain viable to your seller, because you will still have the funds available to complete the purchase without waiting for your own home to sell. This means you do not need to wait to release the funds to purchase the property outright or provide what you need for a deposit on the new property.
How quickly can a chain break bridging loan be arranged?
Bridging loans are designed with speed in mind, so they can be arranged very quickly. Because they are not checked against your income and expenditure, the underwriting process is much faster. The main focus is whether there is enough equity in the property to provide the loan you need.
We also look at your exit strategy to clear the bridging loan. This means checking if there is enough equity in the property you are selling to clear it, or enough affordability for you to remortgage what remains at the end.
In the right set of circumstances, we have had a bridging loan agreed, with funds available, within days. This helps to bridge the gap and secure that chain in a much quicker fashion.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
What happens if I take a bridging loan and then my original buyer comes back?
This really depends on where you are in the process. If your buyer comes back and you have not yet drawn down the bridging loan facility, you could go back to your original mortgage. This assumes your buyer and your seller are both happy with that timescale. If your seller is not happy to wait for a new buyer to go through the process, you can continue with the bridging loan.
Putting the bridging loan in place ensures the sale goes through in the speedy timescales that you and the seller are looking for. You already have a sale on your own property in the background, which allows you to clear that bridging loan even faster. While your interest is calculated monthly and rolled up to the end of the loan, there are no early repayment charges, so the faster you clear it off, the less it costs you overall.
Can I secure a chain break bridging loan against both my current and new property?
Yes, absolutely. We can use security in several different ways for a bridging loan. This type of loan is primarily secured against the Loan to Value of the security.
If you have enough equity in your existing property, we can use that as a second charge against the loan. This allows all of the funds to come from the bridging loan, so you do not need to worry about cash tied up in the property.
If you are looking to downsize, you may not need to take security over the new property at all. We can do it all against the current property to keep things clean and enable you to purchase your onward property as a cash buyer. We can also look to use the equity from both properties if needs be. This approach helps support the loan and reduces the cash output you need to find for your purchase.
Can a chain break bridging loan cover stamp duty and legal fees?
This is all based on the Loan to Value and the equity available across the loan. This will take into account the equity in your existing property, the purchase price, the loan you are looking to borrow on the new property, and any deposit you have.
We can certainly look to increase the size of that loan to cover the additional stamp duty you would have from owning two properties, along with the legal fees to help facilitate that. A lot of people have all of their money tied up in their main residence and current home. If that property hasn’t sold yet, you might really struggle to cover those extra costs. We can cover those additional expenses within the cost of the bridging loan, assuming there is enough equity across the two properties to do so.
This is all added to the loan. As the interest develops month on month, these will be additional costs that you will be incurring, but it is absolutely possible to ensure all those expenses are covered.
Summary
A chain break bridging loan is a great way to buy your next home without waiting for your current property to sell. Our team can arrange these loans quickly, because they are based on your property equity rather than your income and outgoings. You can keep your existing mortgage in the background and avoid making two sets of monthly payments. We can also tailor the loan to cover extra expenses like stamp duty and legal fees if you have enough equity across your properties.
Key Points
- Chain break bridging loans run for up to 12 months on an interest-only basis with no monthly payments required, as interest is rolled up to the end.
- Underwriting is fast because approvals depend on Loan to Value and property security instead of your income and expenditure.
- They prevent your purchase from falling through if your buyer pulls out, keeping you in a strong position to complete the sale.
- There are no early repayment charges, meaning you pay less overall if you clear the loan quickly after your old property sells.
- We can secure the loan against your current home, your new home, or both, depending on your needs.
- Additional costs like stamp duty and legal fees can be included in the loan amount if you have enough available equity.
Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.