Broken purchase trains & bridging loans: how to better your home-buying experience

• Bridging loan and development finance company, Finbri, explains how to improve your home-buying experience.
• A bridging loan offers an affordable solution for home buyers struggling with broken purchase trains.
• Navigating the property market in a climate of uncertainty, post-covid.

There’s nothing worse than being on the brink of securing a home purchase, only to find that the transaction has broken somewhere along the chain. The worst part about this is that these occurrences are distressingly common for homebuyers across the UK. In fact, latest figures show that up to 39% of UK property sales fall through as a result of buyers either making a lower offer; pulling out of a purchase agreement altogether; or from a chain breaking down. In post-covid times, a new dynamic has appeared with loads of buyers rushing back into the property market: buyers over-promising but then finding themselves unable to meet inflated prices, resulting in the falling through of sales.

The problem with this is that withdrawn offers mean the purchase chain is broken, disrupting the lives of many other people involved in the agreement, as well as additional administrative and financing costs. For buyers operating on slim margins, agreement fees and survey costs can run into thousands of pounds, which is not an ideal situation if finances are already pressed.

“Many properties are going under offer within hours of going on the market, and buyers are often offering above asking price to try to beat the competition,” said Danny Luke of Quick Move Now. “The problem is that the pressure can lead to impulse offers, that buyers later withdraw.”

In a volatile market, deals are more likely to fall through. With prices sharply rising, sellers may believe they can gain a higher valuation by opening up the floor to new offers; whilst buyers are usually more willing to trump existing offers or outbid one another. By contrast, in a falling market, buyers might submit lower offers with the hope that sellers will be desperate to accept. However, sellers might remove their properties from the market in the hope that better conditions will arise in the future.

Market volatility also extends to financing options: The Times reported that banks have been overwhelmed by mortgage applications in 2021, resulting in lengthy time delays for approvals, as well as purchases falling through when finance has been refused. This is because potential buyers initially believed they would be approved.

Climate of uncertainty

In addition to this climate of uncertainty, the pandemic has pulled home buyers in conflicting directions in terms of location. Some people have jumped at the opportunity to migrate out of crowded cities and into quieter countryside locations, enticed by the option of working from home and having more space. However, as companies return to their office spaces and the possible disadvantages of living further outside the city arise, this home-buying flow has now started to backtrack. Many now feel that the potential for poor mobile and internet connection, lack of entertainment and difficult methods of transport are not worth it when living in areas like the countryside. This has resulted in further chaos in the property sales market, with both buyers and sellers alike changing their minds as these conditions evolve.

Moreover, remote working has caused delays to the property market: for example, it’s impossible to survey a home remotely. Travel restrictions have made it difficult for some buyers to even view properties they may be interested in, possibly leading to hesitation when it comes to placing offers.

Popular property professional website, Rightmove, announced that the first six months of 2021 had been its busiest in 20 years, with property values skyrocketing by 6.7% between January and June. The expiration of the stamp duty holiday at the end of June also did little to dampen demand, said Rightmove: “High activity levels are continuing,” it confirmed.

The first indications of rising inflation began to appear in mid-November 2021, with experts predicting levels of 5% or more in 2022. This may increase pressure on the housing market, as property prices are likely to increase more rapidly, meaning sellers will be enticed by the prospect of higher valuations. On the other hand, lending will become more expensive, pricing some buyers out of the market and causing sales to fall through.

An affordable solution

For an increasing number of buyers, a bridging loan offers an affordable solution to the above issues. According to the Association of Short-Term Lenders (ASTL), In the last few months of 2020 and into the beginning of 2021, bridging loan applications jumped by more than 39% as compared to pre-covid times. Mainstream mortgage lenders can typically take around three months to arrange a deal, however, buyers may not be able to wait this period out if they want to secure a sought-after property. By contrast, bridging loans can be arranged more quickly, allowing the completion of the purchase, while still giving the buyer time to finalise the sale of an existing property, or arrange long-term financing. 

The advantages of a bridging loan extend beyond salvaging or securing a property deal. It can help the buyer avoid or reduce the cost of renting a property while waiting on a transaction to complete. This can also help save on the expense of extra home surveys, legal fees and financing agreement costs. Most importantly, the buyer can gain the peace of mind of a property transaction, especially in such a volatile climate.

According to Stephen Clark at bridging loan broker, Finbri: “In many property sales, speed is of the essence. If a buyer isn’t able to move quickly, sellers lose patience and look elsewhere, especially in a heated market such as this. The risk of a sale falling through, with all the consequent heartache and expense, means that bridging loans are an increasingly attractive option for many.

Bridging finance helps buyers to complete the purchase of their new home, solving many of their problems at a stroke. Typically, residential bridging loans are only for a few months, with repayment from the sale of an existing property. They are quick and simple to arrange and take the pain out of this notoriously difficult process.”