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Rise in bridging loans to avoid property chain

Journalist: Frances Ivens, Telegraph

ended 06. September 2022

This is Money/ MailOnline journalist writing a piece on the rise of bridging loans by house buyers looking to avoid a buying chain. 

I understand buyers are prepare to take on the higher costs of bridging loans in order to purchase their property faster, before then selling their existing property and/ or taking out a new mortgage to clear the loan.

Is this something you are seeing? What are the issues with this approach?

8 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
We are seeing a rise in the number of people using bridging finance. Housing transactions are taking such a long time at the moment that more and more people are having to turn to bridging finance to secure their purchase as they don’t want to lose it to more liquid buyers. This can be very expensive, though, as set-up fees can be very high, as well as interest rates, especially if the security used has a low cover ratio. It’s really important to speak to an independent financial adviser to get a bespoke deal for your circumstances. Bridging finance needs to be entered into eyes wide open and always with a robust exit strategy.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Bridging effectively puts clients in the position of a cash buyer, enabling them to act quickly and complete within 28 days. If you have found a dream property and need to sell to make the whole thing work, bridging is ideal. Similarly, unmortgagable property such as B&Bs can use bridging to acquire and convert back to a residential property before remortgaging onto a conventional mortgage. Bridging has its place in the market and is the deal maker in many transactions where mortgages are not possible at point of sale. Just make sure that the exit is robust and achievable, something the broker arranging the bridging finance for you should always ensure.
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Michael Aldridge
Director at Lucra Mortgages
In the face of stiff competition from cash buyers, those needing a mortgage to secure a property can often be left out in the cold. Bridging loans can help balance the odds but with speed and convenience comes higher costs and risk. Rates and fees are notably higher with a bridge, and you need to be super confident of being able to pay it off, aka your ‘exit’. If your exit strategy is a standard mortgage then make sure you are confident you have a lender lined up for when you are ready. There is nothing wrong with using a bridge in the right circumstances but ensure you are fully aware of all the associated costs and risks before you dive in.
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Rob Peters
Principal at Simple Fast Mortgage
Residential buyers using bridging finance as a short-cut to a quick property completion need to be aware of the risks inherent within this strategy. These risks include a related property sale falling through, or exit mortgage finance not being granted, both of which could leave the buyer stranded with a high cost loan they are unable to repay. Bridging finance is a sophisticated product traditionally used within the commercial and investment space, but use within the residential sector has increased recently. This increase is primarily driven by extreme delays within the UK conveyancing system, causing both buyer and seller frustration. Those using bridging finance need to ensure they have a robust exit plan in place before proceeding, and also a plan B and C in case the first option fails.
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Mike Staton
Director at Staton Mortgages
This is a huge concern, Bridging loans tend to come with huge fees, highly inflated interest rates, but most worryingly, they tend not to be regulated for investment purchases, which leaves buyers wide open to mis-selling practice by unscrupulous lenders or brokers. You cannot deny that it is potentially much quicker than a standard mortgage at the moment, but when you put the pros and cons together, it is not something I would want to recommend to any of my family members and should only be used as a last resort.
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Imran Hussain
Director at Harmony Financial Services
Anyone considering a bridging loan must go in with their eyes open and ensure they have the means and facilities in place to repay the loan. Bridging is commonplace in the investor world when properties are purchased to be developed and sold, but not that common when it comes to purchasing a main residence as there are not as many lenders in the market for regulated bridging, hence why advice is super important.
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Jamie Lennox
Director at Dimora Mortgages
We've had a handful of enquiries where a buyer doesn't want to lose a house purchase as they've been unable to sell theirs or they've lost their buyer at the 11th hour. More often than not, clients soon change their minds when they start to look at the likely costs involved as many have unrealistic expectations around this and think it will be a cheap middle ground. There are still a selected few who still want to proceed to bridge a short gap. Ultimately, this has worked well for many as houses are still selling extremely quickly. We do however need to think about how the market will shape up in the months to come. If we see a slowdown in the housing market, we could see a group of people stuck with an expensive bridging product for a property they then can't offload to repay.
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Robert Payne
Director at Langley House Mortgages
Many chains have collapsed due to the number of moving parts that have to align for the transaction to take place. In an attempt to remove part of the process and reduce the number of moving parts, some buyers have taken out bridging loans to put themselves in a better buying position, but there are a couple of things to be aware of. Firstly, most lenders will not allow you to remortgage a property you have just bought until you have owned it for six months, so you will either have to hold on to your bridging finance for that period, which is usually on a higher rate, or select a lender that will allow you to remortgage straight after you have bought it, reducing your options. Secondly, the chain may still take a very long time and you could be incurring interest on your bridging finance at no benefit.