There’s lots to consider when buying or selling a home. But if you are selling and buying at the same time, there‘s even more to think about!
It’s important to understand the property market, as it could be easier for you to sell your current home than buying your next one or vice versa. There are also the pitfalls that can come with being part of a property chain, such as long delays or the chain falling through.
Consider the market
It can be helpful to get a grasp of how the housing market is shaping up ahead of going through the process of buying and selling a property. The housing market is influenced by a number of factors, including but not limited to:
- Interest rates
- Availability of mortgages
- Demand for properties
- Supply of housing available to buy
- Economic growth
- Consumer confidence
These factors help determine whether it’s a buyer’s or seller’s market, or if it’s fairly balanced.
A buyer’s market
In a buyer’s market, the number of properties available on the market exceeds the demand from buyers. This means that prices might drop to appeal to buyers. In periods of low consumer confidence or limited availability of attractive mortgage rates, some prospective buyers might delay purchasing a property meaning there is less competition for those actively looking to buy.
A seller’s market
When you’re in a seller’s market, it means that the number of properties available is lower. As a buyer, you could be one of many people competing to buy the same property. And when demand becomes higher than supply, house prices can rise. Typically periods of economic growth, low unemployment as well as low interest rates can increase housing demand and push up house prices.
In these scenarios, it could make sense to split the purchase and sale. Bridging finance can help you buy your new home before selling your current property, potentially allowing you to move faster than other prospective buyers competing with you for the same property.
The property chain explained
In simple terms, a property chain is a series of property transactions which are linked together when the purchase and sale of each is dependent on the purchase and sale of another property. Most people believe that their only option is to sell their current property to finance the purchase of their new home, but bridging finance can provide an alternative to allow your new home to be bought first.
Selling your existing house at the same time as purchasing your new home can be tricky because all parties involved in the property chain need to hit the same milestones at roughly the same points for a timely and smooth transaction. This reliance on other people means that you, as part of the chain, could have little control over the timing of the purchase and completion of the transaction.
The chain only moves as quickly as the slowest party. If somebody else in the chain encounters delays or issues, for instance, they haven’t found a property to buy yet, or they are waiting for their offer to be accepted, this could lead to the chain breaking down; causing disruption and disappointment for everyone else involved.
There are lots of possible reasons that a chain might fall through. It could be as simple as someone having a change of heart about their chosen property or moving altogether, or it could be that circumstances change beyond their control. Sometimes there is a problem with someone’s mortgage application, or a property survey raises concerns.
How a bridging loan can help
Whether market forces mean it’s a challenge to buy the house you want at the same time as selling your current property, or there’s an unexpected property chain collapse that threatens your house move, a bridging loan could help you quickly buy your new home.
With a bridging loan, you don’t have to wait for your original property to sell – you can simply borrow the money for your new home until your current one is sold. This means you can act quickly and confidently to offer on a property, which could secure it for you. It could also give you access to finance quickly should your chain unexpectedly break.
One way of looking at a bridging loan is that it is a way of effectively becoming a cash buyer for the home you want. This can make you a more attractive buyer, but it’s also a notable way to fix a broken property chain should you find yourself in one. Bridging loans can be faster to arrange than alternative forms of finance, which can make them attractive whatever the circumstances.
How does a bridge loan work?
A bridging loan is a type of short-term finance, usually lasting up to twelve months. A longer-term can be possible depending on your circumstances.
As with any kind of loan you’ll be charged interest on a bridge loan but no monthly payments are needed. The interest is calculated and charged every month, but it can be rolled-up and paid off at the same time as you repay the loan.
Repaying a bridge loan
When applying for a bridge loan, the lender will expect you to specify and evidence how you plan to repay it. This is often known as an exit or repayment strategy.
Those using bridging to buy before selling will usually use the money from the sale of their current property to pay off the loan. When you take out a bridging loan you’ll need to detail this exit strategy to make it clear how and when the loan will be repaid.
Other acceptable exit strategies could include waiting for an investment to mature or selling a second home. A clear exit strategy gives us confidence that you’ll be able to repay the loan and interest in a timely manner.
Am I eligible for a bridge loan?
Market Harborough Building Society provides bridging loans for borrowers up to the age of 85 and for properties in England and Wales. With us, it’s possible to borrow between £200k and £3 million.
Why Market Harborough Building Society?
At Market Harborough Building Society we put customers first by providing a tailored service. We know that everyone is different so with a combination of our great product range and friendly team we work hard to provide a bespoke solution for your circumstances.
Our bridging specialists deliver a personal experience for you. From start to finish your case is handled by real people and there will always be a specialist to call directly. There are no automated decisions made.
To find out more, or to see if you might be eligible for a bridging loan, please call us on 01858 412610.