Bridging loans for house purchase and chain breaks

A bridging loan for a house purchase is secured on your current home, the new one, or both, and covers the gap between buying and selling. When the old property sells, the sale proceeds repay the bridge. It lets a buyer complete on a new home without waiting for their own sale to go through.

Lenders look at the combined value of the properties, the total borrowing against them and the expected sale price of the home being sold. The loan-to-value is usually worked out across all the security. If a residential mortgage will also be needed on the new home, the lender checks that it can be arranged when the bridge ends.

When a buyer further down the chain pulls out, a chain-break bridging loan can let your purchase go ahead on time. The bridge pays for the new home now, and your current property is sold afterwards without the pressure of a linked completion date. It is used to stop a whole chain collapsing over one delay.

The risk is that the old home takes longer to sell, or sells for less, than planned. Interest keeps running until the bridge is repaid, so lenders want a realistic asking price and a term that leaves room for delays. Many borrowers ask an estate agent for a written valuation before applying.

A closed bridging loan has a fixed repayment date because contracts on the sale of the old property have already been exchanged. An open bridging loan has no confirmed sale yet, only an expected one. Closed bridges are seen as lower risk, so lenders are usually more flexible on terms for them than for open bridges.

Whichever type is used, the lender also checks the borrower can cover the costs if the sale is delayed, and may ask for a longer term as a margin of safety. For an open bridge, the lender needs more evidence that the property will sell, such as marketing details and an agent's opinion of value. The what is a bridging loan guide explains the two types and how interest is handled on each. Lenders often price open bridges higher to reflect the uncertainty.

Usually, yes. If you or a close family member will live in the property securing the loan, it is normally a regulated mortgage contract under the Regulated Activities Order 2001. The lender must then check affordability and give the standard disclosures, and the borrower can complain to the Financial Ombudsman Service if something goes wrong.

Bridging to buy an investment property is normally unregulated, so fewer of these protections apply and the lender focuses more on the property and the exit. The rules and protections are compared on the page about regulated bridging loans, which also explains why regulated cases can take longer to arrange.

You need equity rather than a cash deposit in most cases. Lenders limit borrowing to a share of the property value, so the equity in your current home often acts as the deposit on the new one. If the combined borrowing is low enough, some lenders will fund the full purchase price of the new home.

The total cost includes interest, arrangement and exit fees, valuation and legal costs, and Stamp Duty Land Tax may also be due on the new home. A bridging loan calculator shows the repayment figure for different loan sizes, terms and interest methods, which helps when comparing quotes.

Not every lender offers residential bridging, because it needs FCA permissions. Bridging loan brokers can compare the lenders that do, and check whether an open or closed bridge suits the expected sale timetable before an application is made.