Home Property Bridging could prevent total chain collapse

Bridging could prevent total chain collapse

4th Apr 24 12:28 pm

The latest market analysis by bridging finance specialists, Apex Bridging, reveals that when a property buying chain starts to break, sellers who need the proceeds of a sale to fund an onward purchase can use a bridging loan to save their journey from total collapse for a cost of less than £2,500.

The UK housing market is warming up and, after a difficult couple of years, buyer activity is on the rise.

But with the nation’s economic future still so uncertain, buyers and sellers are still having to navigate a lot of unknowns, and this uncertainty increases the risk of a purchase or sale falling through. In such instances, a bridging loan can be used to secure the onward purchase while waiting for the sale of a property to complete.

Apex Bridging has analysed the current bridging loan market – based on 66 currently available products – to see what the current cost of a bridging loan is, what this means for those looking to utilise them, and how much a bridging loan will cost when used to save a chain that is on the brink of collapse.

The data compiled by Apex Bridging across 66 current products shows that, in the current market, the average bridging loan comes at a maximum LTV of 70%, while the average interest rate for a bridging loan is currently 10.8%, with the addition of a 2% setup fee.

For those who are looking to use bridging for a period of 6 months, the average bridging loan would see them pay £15,787 in interest based on the current average UK house price of £281,913.

This cost is £1,372 more than it was last year when, in March 2023, the interest and set-up fee payment for a 6-month bridging loan was £14,416.

This type of bridging loan, with its relatively long time-frame, would most commonly suit someone who is looking to buy an investment property and refurbish it to improve the condition before seeking long-term financing.

However, another common reason for requiring a bridging loan is to rescue a residential sale from collapse due to breaks or delays in a buying chain, for which a much shorter-term bridging loan is usually required.

In such cases, Apex has found that the interest incurred when using a bridging loan over one month and with a setup fee of 2% is £5,920.

This cost of almost £6,000 might seem steep for a one-month loan, but if it helps to avoid a complete collapse of a seller’s onward purchase, it could be money very well spent.

The average cost of a fall-through in the UK is estimated to be £3,433, so removing this from the bridging loan cost means you’re actually only paying £2,487 to save your purchase.

By saving your purchase with bridging, you are avoiding the huge headache and stress of having to go back to square one of your property buying journey because you’re able to continue with your onward purchase while waiting for another buyer to come along and purchase your existing property.

Managing Director of Apex Bridging, Chris Hodgkinson, said, “Sometimes in life, things don’t go to plan. And a lot of the time, it’s completely outside of our control. That’s why bridging loans are such a vital tool that homebuyers should be aware of. Short-term loans that provide a bit of breathing space exactly when you need it and are then paid off very quickly indeed – job done, no long-term debt hanging around your shoulders.

The important thing to consider is whether or not you’re going to be able to pay back the loan in the short timeframe required to avoid having to pay any unnecessary interest or fees. For home sellers who were relying on the sale of their current home to fund an onward purchase, in the event of a buyer pulling out at the last minute, a bridging loan can save the day, enabling you to continue with your onward purchase while providing more time to complete your sale.”

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