The year 2022 has seen intense competition in the property market. Since the houses on board are smaller in number, people are caught up with long property chains.
So when you sit down to calculate the risks of buying and selling a house, the thing that stands out from the rest is the risk of a property chain break.
Often the snail speed transactions delay your dream of settling in the house you want. To add fury to fire, the longer the chain, the higher the chances of a chain break.
It sucks when you have to wait months in the chain only to see your buyers pulling out for some reason.
In case of a chain break, you may be stressed and don’t know what to do now. Luckily, we have a solution to your problem.
Bridging loans remains a solution for your chain break. In this article, we will explore what a chain break is, what the reasons are, and how bridging loan providers can help you in chain breaks.
What is a chain break?
To understand what a property chain break is, you need to know what a chain means in the Uk property sector and what it implies to an ordinary buyer/seller inside the chain.
So, we can define a property chain as some house buyers or sellers connected, forming a chain of transactions.
Picture this: You are in a property chain as you want to buy a new house, but you need someone to purchase your old house. So, you can only proceed with the transactions until you sell your old house and put that money into buying a new one.
That makes sense, right? Well, like you, the person whose house you are buying is also stuck with a payment dilemma. He also wants to buy a new house and can only find a seller when you proceed with the payments.
This chain of house buyers goes on to several inter-connected people with transactions.
The delay in payments is only one side of the gloomy picture. The real problem occurs when one of the buyers suddenly leaves the chain because he or she cannot proceed with the transactions.
That’s called the chain break. It occurs when the chain becomes considerably longer, and money gets delayed over months till one buyer suddenly opts out and leaves the chain broken.
So, if you are in the middle of the chain, you won’t get your dream house. However, if you have the money to fill the void, you can connect the chain and proceed further.
What are the reasons for a chain break?
Below are some reasons why most chains broke when transactions got delayed.
The sale gets delayed:
Typically a real estate contract includes contingencies. Barring the logical reasons for the delay, unexpected delays often piss off the sellers.
Those who have signed a contract to sell their house at a specific date could have found a new buyer if they had known that such delays would come their way. But, the contracts sanction that the buyer performs the transactions on a suitable date.
Buyers often face the issues as they don’t have that much-saved money and must wait until the money rolls over to their accounts. When such a deadlock occurs, the seller or the buyer breaks the chain.
The buyer pulls out intentionally:
Before, we explained that the buyer could end up in some transaction or payment issues, though they wanted to buy the house.
However, in a chain, there are also some other reasons. Maybe the buyer will lose interest in the property.
He may get some better-undervalued house and doesn’t want to pursue it in the chain. Apart from that, chain breaks may also arise from communication or survey.
Chances are there that the buyer, when visiting the house, finds some issues that weren’t mentioned in the survey. It may cause a trust deficit, and the chain eventually breaks.
Property needs refurbishment:
Sometimes the house you want to buy needs repairs. It might be leakage or refurbishment of the kitchen.
When that renovation goes on, causing unexpected delays, you feel the need to leave the chain.
It causes the chain to break. However, it also affects the financial condition of several buyers in the chain.
Do people still use bridging finance for chain breaks?
Bridging loans surged in the first three quarters of 2022. Since Covid-19, the race to buy a house will continue. People have hopped on P2P lending platforms and have visited specialist loan investors to get a loan.
Out of many reasons, the primary reason to get bridging loans is still chain break. Buyers must keep the chain going until the last buyer gets his house. For that reason, a bridging loan seems a pertinent finance option.
A bridging loan provides instant cash secured against the UK’s property. It’s seamless and streamlined. So, you need not wait for months to get money.
Therefore, 21% of the bridging loan borrowers wanted it in a chain break to keep the transactions going in the 2nd quarter of 2022.
These figures explain that bridging loans are still the most popular reason to restore or stop a chain break.
Bridging loans are easy, especially when you are in a house purchase chain. We all know that most people, except first-time buyers, don’t have the lump sum to buy a house. So, most buyers first sell their house to buy a new one.
Its systematic chain of buyers often causes money delays and even breaks frequently. Thus, a bridging loan helps buyers buy a new house before their old house sells. Thus, it keeps the whole chain intact.
This article has gone through the nature and causes of chain breaks and how bridging loans repair them. If you have gone through it, let us know your feedback in the comments.