Property bridging: what is it and is it the best solution for you?
Property bridging can be a lifeline for sellers during the selling process.
The reason why it is so appealing is that sellers often find themselves in financially vulnerable situations during the selling of their houses.
They might not have access to their capital or the sale of the house might be delayed.
Even if the sale is finalized within the average period of 3 months, the seller still has to wait for the settlement of the property.
This is where financial bridging can help close the gap and lessen the financial pressure off the seller.
What is property bridging?
Property bridging is a short-term loan that is based on the anticipated proceeds from the sale of a house.
This type of loan is created specifically for real estate whilst the current home is used as collateral to secure the loan amount.
This loan is easily accessible and it is separate from the home loan itself.
The average loan period is about 45 days and the loan is paid back to the conveyancing attorneys as soon as the registration and transfer fees are paid.
Why do sellers make use of property bridging?
Sellers make use of property bridging for several reasons.
They might need funds to cover moving costs, put down a rental deposit on their next home, or cover the transfer costs of the new property.
It can also be used for issuing compliance certificates and settling municipal rates.
Property bridging is often used by homeowners for renovations and remodelling before selling the home.
This enables them to get a higher price when they sell and with low monthly interest, it is an easier way to increase the value of the house.
Except for these few points, there are also several benefits associated with property bridging.
What are the benefits of property bridging?
1) Property bridging is almost instant
It doesn't matter what the size of the bridging loan is, the approval time is almost instant.
It is usually arranged within a few working days.
This is often the reason why investors make use of it when they spot new developments or promising properties.
It gives the seller some financial relief without them having to wait too long for the money to be deposited into their accounts.
2) There are no restrictions
There are several reasons why sellers might need property bridging as mentioned above but this is by no means an exhaustive list.
There are no restrictions as to what sellers can do with the money. It can be used for emergencies, holidays, or travel expenses.
Unlike a home loan, there are no set rules that dictate what the money should be used for.
3) Property bridging is accessible
Another way in which property bridging is different to a home loan is that it is more accessible.
Sellers don't need to have an excellent credit record to be approved. All applicants can apply and most of the time they are approved.
Because this is a short-term loan, it creates short-term debt.
The bridging amount is paid back in full as soon as the proceeds of the home have been paid out.
4) All property types can be used as security
As previously stated, the seller's house is used as collateral during the loan period.
The advantage of property bridging is that it doesn't matter what state the house is in.
It doesn't have to be in perfect condition for the loan to be approved.
5) Property bridging can be used to buy out a co-owner
This is probably the biggest benefit for real estate developers and investors.
It is also beneficial for joint owners who decide to go their separate ways.
The amount gained from the loan can be used to buy out a co-owner.
This is particularly helpful if the co-owner was struggling to contribute to the monthly mortgage costs.
Final thoughts
Property bridging is an easy way to ensure that sellers have capital at hand during the selling of a property.
It offers some financial relief for anything that might have to be covered before the proceeds of the sale are approved.
It is a short-term loan with low interest that gives the seller room to breathe whilst the sale of the house is finalized.