Chain Break Finance

Chain break finance is a term for a bridging loan intended to allow the purchase of a new home when the main property chain has broken or is about to break. It is a speedy type of property finance which allows the sale to go ahead when under normal circumstances the sale and purchase process would fail

Chain Break Finance Mortgage GuardianAs an example, Mr & Mrs Smith are buying a property in Stevenage which is good move for them as they have a growing family and are close to some good schools as well as being a little closer for Mr Smith’s job. It is perfect! They are getting ready to exchange contracts when the buyer of their existing house pulls out due to an unexpected redundancy of the first time buyers further down the chain. Under the current arrangement the Smiths needed to sell their existing home in order to pay off the old mortgage and put down the left over money on the new house along with the proceeds from the new mortgage. Without the sale of their existing home they will not have enough money to buy the new home and everybody in the chain will have to sell their house all over again.

Mr & Mrs Smith take out something called chain break finance which allows them to raise additional finance without being reliant on selling their own home. Whilst it does not help the people down the chain, it can keep the rest of the chain from collapsing. They realise that in the long they must either sell their existing property or in fact look at whether to keep the property for investment purposes and rent it out. Mr & Mrs Smith could ask for a reduction in the house that they are buying to help pay for the chain break finance. Alternatively, they could ask the rest of the chain to reduce in price or if that fails they can bear the full cost themselves.

The interest could be paid monthly or rolled up until the exit of the chain break finance. This is usually when the house is sold. The lender may use one or both houses as security.

Our adviser will talk you through the various options and advise whether this form of bridging finance will work for your circumstances.

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