Since the onset of the Covid pandemic and the ongoing volatility in domestic and global financial markets, the regulated bridging loan sector has seen a surge in popularity with brokers and homeowners starting to acknowledge the use of bridging finance as a useful financial tool for realising their property goals.
Most recently, Norton Broker Services has fielded a significant increase in the number of enquiries regarding the use of bridging finance specifically for chain break purposes, with a growing number of brokers identifying the potential offered by a regulated bridging loan as a means of putting their clients ahead of the competition and safeguarding property purchases.
According to recent data from Bridging Trends Quarterly Update, the use of bridging loans for a chain break is now the top reason for the use of bridging finance, accounting for 22% of all sales in Q3 2022.
Overall, regulated bridging increased its market share over the quarter, accounting for 45.2% of all transactions across the month, up from 43.3% in Q2.
In contrast, demand for investment property purchases purposes fell from 24% in Q2 to 16% in Q3.
Given the current economic climate and continued uncertainty in the mortgage market, the uptick in demand for bridging finance for chain break purposes is unsurprising.
This is because it allows homeowners to quickly raise the funds needed to circumvent the problems associated with a chain break by enabling them to purchase a new property outright with cash before repaying the loan with the money they receive when the sale of their existing property goes through.
By taking out a bridging loan, the client effectively becomes a cash buyer which can help to alleviate a whole host of problems associated with buying a house including the chain collapsing and wiping out months of paperwork and thousands of pounds in fees and associated costs.
\It also means that if your client’s buyer does pull out, they can still go ahead with their own house purchase and avoid losing out on their dream property.
Taking out a bridging loan can also prevent the buyer from having to play the waiting game or sell their current property at a lower price simply to ensure the sale goes ahead. By breaking the chain, the buyer is guaranteeing their own property purchase, which increases the security and stability of the sale.
For those clients that may be concerned about the costs associated with taking out a bridging loan, it is worth remembering that cash buyers are extremely attractive in the housing market and can often negotiate a better price as a result.
Similarly, the cost to bridge the gap using finance can be offset by the higher final sale price of the existing property.
It is also often falsely thought that bridging loans for chain breaks are reserved only for larger loans or for properties with a significantly higher purchase price, but this is simply not true. The loans can be used across the board and the recent lift in enquiries have in fact been for average priced transactions on standard run-of-the-mill properties.
Brokers with clients looking to move quickly on a house purchase, or concerned over the length of time it is taking to secure the house of their dreams, should ensure they consider a bridging loan for chain break purposes to address their needs.
As with all bridging finance, borrowers will need to ensure they have an exit strategy and a means to repay the loan, which in most cases, will probably be the sale of their existing property.
For those unfamiliar with the bridging finance market, enlisting the services of specialist packagers such as Norton Brokers Services can help guide you through the process and ensure your client gets the advice they need.
Sonny Gosai is senior sales development manager at Norton Broker Services
