Thinking creatively when it comes to financing your next property purchase
Paresh Raja (pictured), chief executive of Market Financial Solutions
Even amidst rumours of its demise, it is undeniable that the UK’s real estate sector is hugely attractive among both international and domestic investors.
Thanks to increasing prices and health yields, commercial and residential properties have remained popular ventures for those seeking safe and secure assets able to withstand sudden and volatile market shocks.
According to recent figures, strong market demand has pushed the average price of a UK home to £225,000, and property forecasters anticipate incremental increases over the coming 12 months despite a potential interest rate hike and uncertainty surrounding Brexit.
The competitive nature of the UK real estate market has, however, made it more challenging for prospective homebuyers seeking to move onto or up the property ladder.
Limited supply and rising demand have led to a rise in the number of property chains, in turn increasing the time it takes to complete a purchase and thereby meaning there is a greater risk of the deal falling through.
More and more deals are falling through
In Q1 2018, the number of house sales falling through before completion had reached 38.8% – this is up from 34.9% a year earlier and the highest recorded figure in over a decade.
Of these failed purchases, nearly half (46%) were due to a buyer changing their mind, or the seller becoming frustrated by the time it was taking to negotiate and exchange keys.
Understandably, the delays typically encountered when stuck in a property chain has become a source of frustration for prospective buyers, with the added repercussion that a collapsed chain can lead to thousands of pounds worth of solicitor, conveyancing and broker fees which ultimately amass to nothing.
With delayed chains affecting more buyers and sellers, there is a clear need for people to think more creatively when it comes to buying a property.
From the outset, a strategy is needed which takes into account the different scenarios that could arise, including a broken chain.
Indeed, people must consider unforeseen time delays ranging from the initial negotiation period right through to the days leading up to the completion of sale.
Moreover, it goes without saying that having access to the finance needed to commit to a purchase is of utmost importance.
The mortgage application and approval process can be time-consuming, made more complicated by the stringent lending measures that have been introduced in recent years.
Having a mortgage agreed in principle prior to a purchase is of course standard practice, but the ensuing background checks, mortgage affordability interviews or changes in earning as the property negotiations develop can lead to significant delays down the line.
As such, it is important that property buyers – particularly the more seasoned property investor who is far more active in this market – have a firm grasp of the options available to them if a mortgage is not viable.
Keeping your options open
Moving beyond the traditional finance instruments available to borrowers, alternative finance solutions such as specialist bridging loans can be ideally suited for those stuck in a chain.
Bridging loans are by their very nature a flexible and versatile solution, ensuring the rapid release of capital by using an existing property asset as a security.
The specific application varies according to the financial circumstances of each buyer, but in most cases, bridging loans ensure a buyer can purchase a property if there are delays in receiving the funds from a sale of an existing property or because another lender is unable to act quickly enough.
This type of creative thinking and willingness to look beyond traditional finance solutions has significant potential for those at risk of being stuck in chain.
Having access to capital places any buyer in a position of strength – it helps negotiations move more quickly and in turn reduces the risk of buyers getting locked in complicated chains or there being delays that result in a deal falling through.
Bridging loans will not be suitable for everyone, of course. Nevertheless, it remains important for those who are active in the UK’s property market to know the options available to them and understand how they can avoid some of the problems that are causing an increasing number of real estate deals to break down.