Chain Break The Most Common Use Of Bridging Loan


The property market in 2022 has been highly competitive, with a limited number of houses available for purchase, leading to long property chains. When assessing the risks associated with buying and selling a house, the most prominent risk is the potential for a chain break. Slow-moving transactions often delay homeowners' aspirations of moving into their desired homes, and the longer the chain, the greater the likelihood of a chain break. 

Waiting for months in the chain, only to see the potential buyers withdraw, can be a frustrating experience. In the event of a chain break, it can be stressful not knowing what to do. Fortunately, bridging loans are available as a solution to this problem. This article will delve into the concept of a chain break, its reasons, and how bridging loan providers can help those affected.

What Is Chain Break? 


To comprehend the concept of a property chain break in the UK property sector, it is essential to understand what a chain represents and how it impacts the ordinary buyer/seller within the chain. A property chain refers to a group of house buyers or sellers linked together, forming a chain of transactions.

For instance, suppose you want to buy a new house but need to sell your old house to proceed with the transaction. In that case, you can only proceed with the transaction once you have sold your old house and invested the proceeds in buying a new one. Similarly, the person whose house you intend to buy faces a similar payment conundrum. They, too, want to buy a new house but can only proceed once you complete your payment.

This chain of house buyers goes on to interconnect several people with transactions. The delay in payments is just one aspect of the issue. The real problem arises when one of the buyers abruptly leaves the chain, unable to proceed with the transaction. This scenario is known as a chain break. It occurs when the chain becomes significantly longer, causing money to be delayed for months until one of the buyers suddenly exits the chain, leaving it broken.

As a result, if you are in the middle of the chain, you may be unable to purchase your dream house. However, if you have the resources to fill the void, you can connect the chain and proceed with the transaction.

What Are The Reasons for Chain Break? 

Here are some reasons that help you understand why most chains broke: 

Delay In Sale 

Real estate contracts typically incorporate contingencies, and although logical reasons for delays are understandable, unexpected delays can often cause frustration for sellers. If they had been aware of the impending delays, those who had signed a contract to sell their house at a specific date could have found a new buyer. However, contracts allow buyers to conduct transactions on a suitable date.

Buyers often encounter problems as they may not have sufficient savings and must wait for funds to be deposited into their accounts. In such a deadlock, either the seller or the buyer may decide to break the chain.

The buyer Pulls out Intentionally. 

In addition to transaction and payment issues buyers face, there are other reasons for chain breaks. For example, a buyer may lose interest in a property and opt for a better-valued home, choosing not to pursue the transaction within the chain. Chain breaks may also arise from communication or survey-related issues.

During a visit to the property, the buyer may discover issues not disclosed during the survey, leading to a trust deficit and eventual chain break.

Property Needs Refurbishment 

At times, a property requiring repairs, such as fixing a leakage or refurbishing a kitchen, may cause unexpected delays, leading some buyers to consider leaving the chain, resulting in a break. It can not only be frustrating but also financially impact several buyers within the chain.

Do People Use Bridging Finance For Chain Breaks? 


In the first three quarters of 2022, bridging loans UK have experienced a surge in popularity, driven by the continuing race to buy homes amidst the Covid-19 pandemic. As a result, many buyers have turned to peer-to-peer lending platforms and specialist loan investors to secure financing.

One of the primary reasons for getting a bridging loan is to avoid a chain break. Buyers must keep the chain going until the last buyer obtains their new home, making a bridging loan a suitable financing option. These loans provide instant cash, secured against UK properties, with a seamless and streamlined application process, eliminating the need for long waits for funds.

In the second quarter of 2022, 21% of bridging loan borrowers used the funds to prevent or resolve a chain break, indicating that bridging loans remain a popular choice for restoring or preventing a chain break.

Conclusion 

In conclusion, property chains have become a significant risk in the UK property market, with delays and chain breaks causing frustration and anxiety for buyers and sellers. While delays due to unexpected issues can occur, intentional chain breaks and property refurbishments are major reasons for chain breaks. To avoid such situations, bridging loans have become a popular financing option, with buyers using them to keep the chain going until the last buyer gets their new home. As a result, bridging loans remain a pertinent solution to restore or prevent a chain break in the UK property market.


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