How does Chain Break Finance work?
Chain Break Finance
Q: I have just found out today that my house sale has fallen through due to some first time buyers pulling out further down the chain. I am really upset because we were about to exchange contracts this week on my dream house. Apart from being a nice house in a good area, we would be in a good catchment area for schools for my children. We had the mortgage arranged and everything! What options do I have as I do not fancy unpacking all of these boxes? I have heard of something called chain break finance.
A: Firstly, I am sorry to hear that you are facing these difficulties! A property chain breaking down is one of the biggest fears when buying and selling your home simultaneously.
Obviously you are part of a chain where the person at the top of the chain is relying on everyone else (including you) to sell their own home and buy from the next person.
One way to keep part of the chain together after it has broken would be for you to take out chain break finance which is a special type of bridging loan. Chain break finance allows you to buy your new home without relying on your existing home to be sold. The upside of chain break finance is that it can be arranged very quickly so that the chain further up remains intact and you can move in without much delay. The downside is that you will have to continue paying a mortgage on your existing home whilst you find new buyers as well as pay the interest on the chain break finance. The scary part can be paying for both a mortgage and chain break finance without knowing how long it can take to sell your existing home. If you know the market well you can make an approximate calculation how long you will need this finance for. Your estate agent will be able to give you market advice on how quick your property will sell. This type of bridging finance has been specially adapted so you can rollover the interest until your house has been sold. Typically, the bridging loan lender will use your new home as security and maybe the existing home too until sold.
It is a good idea to roughly calculate the cost of the chain break finance and seek a reduction in price on the property you intend to buy. That could ripple up the chain until everyone in the chain is making a contribution. Not everybody may go for it but it is worth a try.
Stamp duty tariffs will change for people owning a second property but the additional in the tariff can be reclaimed if you sell your property within 18 months. Chain break finance can see you clear of additional tariff charges.
Certainly here at Mortgage Guardian we can put you in touch with our specialist bridging loan adviser.
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