Finance

Bridge the gap on broken chains

Brightstar Financial
|
8th November 2019
sold

You probably don’t need to be reminded that property is taking as long to sell as it ever has.

With many buyers holding back in the hope that they might get a better deal in the future, and the supply of fresh housing stock suffering as homeowners also sit tight, property transactions are stagnating. And, the longer a transaction takes to complete, the greater the chance of something going wrong that causes it to fall through.

In this environment, cash really is king. Cash buyers are highly sought after as they enable vendors to break the cycle of slow-moving chains and this means they can negotiate better deals.

With static current stock and a reduction in newer property to invigorate purchasers, there is increased competition for vendors which pressurises a reduction in prices to become competitive. This is a vicious cycle and one that probably won’t resolve itself for at least 12 to 24 months until we can see the dust settling on the current political situation.

So, how can you create a cash buyer out of an unsold homeowner?

A bridge to greater certainty

In the current market, many vendors insist that home movers have sold their property before they will even accept an offer, as they want confirmation that the finance is in place to secure the agreed purchase price before taking their property off of the market.

But securing the sale of a property is not the only way to provide vendors with the certainty they demand. A short-term, or bridging, loan can release the equity from a buyer’s current property to be utilised within days. This puts a purchase in a much stronger negotiating position, enabling them to have a better chance of winning bids, commanding better prices, and being in a position to act and respond to the vendor’s needs as well as their own.

The entire buying process is made easier and gives the purchaser the ability to regain control of the transaction.

Consider the detail

This all sounds great, but there are costs involved. In the first instance, by simultaneously owning 2 properties, additional Stamp Duty is payable upon purchase of a second property. This can be claimed back once a buyer is able to sell their current property, they will need to have these funds available to pay the increased Stamp Duty. A bridging loan could additionally be used to secure funds for these costs if the amount of equity available across the properties permit.

Interest and fees for the short-term loan may initially seem high. Most lenders charge 2% on application as well as a monthly rate of between 0.48% per month to 0.80% for standard first charges and 0.75% to 1.3% per month for second charges, if an existing mortgage is to remain in place.

However, these costs also come with benefits. Bridging is a valuable tool, and when used correctly, a buyer could offset most of their expenses. The power to negotiate from a position of already having finance in place can mean that some vendors are willing to take thousands off asking prices to secure a quick sale.

For example, the basic cost to raise £200,000 against a property valued at £300,000 for 6 months at 0.69% per month could be £15,000 including lender, solicitor, and valuation fees. If a buyer then exploits the improved position that a bridging loan provides them and secures just a 5% reduction on a £300,000 asking price, the cost of the bridging loan is completely covered.

Additionally, a homebuyer who has taken a bridging loan rather than waiting to sell their property could even get to move into their new home at their leisure following completion. This allows time for any additional works to be completed prior to taking occupation and avoids that highly stressful moment on moving day when they have to juggle the completion of a sale and a purchase and not knowing when they will get the keys for their new home.

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