Bridging the gap in a broken chain

Anyone who has sold property will know that sometimes it can take a long time to sell.

With the supply of fresh housing stock suffering while homeowners sit tight and wait and buyers hoping to get at a better deal, property transactions are slowing. As always, the longer a transaction takes to complete the more chance there is for things to go wrong.

With a lack of new property to stir up purchasers, there’s more competition for vendors to be competitive, which can squeeze a reduction in prices. It looks as if this cycle is not likely to resolve itself until the current political situation dies down.

However, this environment does open up opportunities for buyers who offer cash. Cash buyers come without a chain, making them highly sought after giving more room to negotiate a better deal.

Creating a cash buyer out of an unsold homeowner

Many vendors in the current climate are looking for certainty, insisting that movers have sold their property before accepting an offer. Vendors are increasingly looking for confirmation that finances are in place before taking their property off the market.

However, there are other ways of providing the vendors with the certainty they demand without securing the sale of a property. A bridging loan (short-term loan) can be used to release the equity from a buyer’s current property. The advantage of a bridging loan is that it can be agreed within days, putting the buyer in a much stronger negotiating position. Having the ‘cash’ means the buyer is in a much better position to act, giving them a higher chance of winning bids, getting better prices and being able to respond to the vendor’s needs quickly.

A bridging loan makes the buying process much easier and gives the buyer much more control over the transaction.

What a bridging loan could mean

The advantages of using a bridging loan certainly sound great, but there are costs involved. Using a bridging loan in this way will mean the buyer will simultaneously own two properties, meaning additional Stamp Duty. This can be claimed back once the initial property is sold, but the funds will need to be available upfront. If there is enough equity in the property, a bridging loan can be used to cover the cost of the Stamp Duty.

A bridging loan also comes with interest and fees. Although these may seem high (most lenders charge on application as well as a monthly rate) these costs also come with benefits. When used correctly, a bridging loan is a valuable tool, allowing a buyer to offset the majority of their expenses. Having the power to negotiate when you already have the funds in place could mean that vendors are willing to take thousands off the asking price to ensure a quick sale.

If a buyer uses a bridging loan is this way and exploits their position, securing just a small reduction on the asking price can completely cover the cost of the bridging loan.

Taking this route also means that the buyer can move in their own time, avoiding the stress of moving day.

For more information about bridging loans speak to one of our advisers or apply for a loan here.