Chain Break Bridging Loan
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Chain Break Bridging Loan
Scott West talks to us about chain break bridging loans.
What do we mean by the term chain break finance? How does it work?
Typically, someone is in the middle of a purchase – normally residential, but not exclusively – and they are in a chain of transactions. They are buying from somebody, who’s buying from somebody else, who’s also buying from somebody else… you’ve got a chain of people, and somebody’s also buying your property.
A chain break might be where the person buying your home has pulled out of the transaction. That means you now don’t have funds to purchase the next one. A bridging loan allows you to buy the next property while you work on selling your current home.
It stops you worrying about what’s happening behind you in that chain. You can continue the purchase without waiting for your property to sell. It keeps the transaction moving, giving you time to complete – and also secure alternative finance if your plans change.
How can you minimise the risk of a property chain breaking?
That’s difficult – a lot of it is outside your control, because chains can have six or seven people or more. That’s a lot of people, each with different scenarios and circumstances. You can’t control what they’re going to do, what their solicitors are going to say or what happens with their mortgage lender.
The best thing you can do to reduce your own overall risk is to be financially prepared. That means having your Agreement in Principle and your onward finance sorted. Get your deposit together, and use experienced solicitors who communicate quickly and act fast when needed.
It helps to be on top of it all, having your paperwork back and everything ready to go as quickly as you can. The fallback, in the event that something goes wrong, is to use this bridging finance.
Why would you need a bridging loan of this type?
You’d use chain break finance in the event that your buyer drops out but you still want to proceed with the purchase you’ve found.
Or, perhaps there’s a significant delay in your sale. The person buying your home still wants it, but there will be a longer delay and the person you’re buying from – or somebody else in the chain – won’t wait. You need to still process your purchase quickly.
You might be buying at auction under time pressures, in which case bridging finance works well.
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What information or documents do I need to gather for a chain break bridging loan?
It’s the standard things we usually cover off for bridging loans – proof of ID and proof of address, with your passport and driving licence, typically.
We need details of your property and the one you’re buying, so valuations, any debt outstanding on them, finance arranged for the onward one, and an overview of any cash deposit you might have towards the transaction. Then we can work out how much finance is actually required.
We also need an understanding of the exit strategy. In most scenarios, it’s a mortgage on the new home and the sale of your existing one. But if it’s different, we’ll cover it off and check that it makes sense.
Next the valuation reports are done by the bridging lender. We also check that the conveyancing is going to take place within an appropriate time frame.
How do I apply for chain break bridging finance? What’s the process?
The process is fast and straightforward. First, speak to a broker – hopefully us – and we’ll gather information from yourselves about the scenario, the sticking points and how quickly we need to act. We then put together a shortlist of lenders to approach that best fit your scenario.
We’ll also send you a list of required documents. That will include ID, bank statements, Agreement in Principle, etc. The property is valued and the lender assesses the documents we send. It goes through legals pretty quickly. We can have them done in two weeks.
I would normally suggest you expect four or five weeks as a nice, comfortable timeframe, but they can be done faster.
How much does chain break bridging finance cost?
It’s a bit more expensive than traditional mortgage bridging loans. These are very unique products for a very specific purpose, unlike residential loans. We’re looking at maybe 0.6% to maybe 1% per month, depending on the Loan to Value and your credit position. The location of the property and value of the loan can also change that.
An arrangement fee is typically 2% of the loan amount, and is added to the loan so you don’t pay that upfront. Valuation and legal fees valuation are typically scaled based on the value of the asset.
I would say to budget £800 per property. If you need to use both the new and existing properties because of the equity, double it to £1,600.
Legals are usually £1,000 per property. It should be less, but if you budget for that and you’ve got change left over, you’re probably happy [All information correct at the time of recording in May 2025].
You’ve demonstrated how a broker can help – is there anything else to add?
A broker can add a lot of value by assessing your options, making them very clear, and assisting you with a chain break if you need it. It can be very stressful to find your new dream home and then the chain falls apart – because your buyer can’t move quickly or has to pull out of the transaction.
A home is a very emotional investment. These products can really take that stress away. So speak to us, we’ll get the lender with the best terms for your circumstances and make the process as painless as possible.
SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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