At Aviser Finance, we are here to provide tailored solutions for a range of different financing options. However, we are seeing an emerging trend in the need for a very specific financing solution.
Here’s the low-down on what Bridging Finance is, and why you might need it.
So, what is Bridging Finance?
The need for Bridging Finance occurs when you want to buy your next property before or while you’re selling one you already own. Your contribution to the purchase will come from the property which has not yet sold and settled at the time of purchase.
This form of finance is common when people are fearful of selling and not finding a property to purchase in a timely manner. This could result in them being ‘homeless’, in an Airbnb, or worse, being unable to afford to buy back into a rising market. Low stock levels and rising markets fuel this fear and create higher demand for Bridging Finance.
Why is it helpful?
Bridging Finance offers a potential solution to this by allowing you to purchase your new property first. An offer of Bridging Finance usually relies upon the amount of equity available in the property to be sold (for example, current properties you may own), how much you need to borrow for the purchase to settle, and how much you will end up owing after the settlement of the sale, as well as your borrowing capacity.
What to keep in mind!
There will be a period where you will own both the purchase property and the property to be sold. During this period, the debt will be at its peak, also known as ‘Peak Debt’. For most lenders offering this type of product, loan repayments during the peak debt period are based on the actual debt that will remain once the sale proceeds are available – this is known as the ‘End Debt’.
The interest on the bridging loan amount is just added to the loan and netted off/deducted from the sale proceeds.
However, If you have purchased before selling, and are regarded as under pressure with your sale – meaning you are committed elsewhere and need to sell the property, some lenders will ‘shade’ or remove a percentage off the valuation of the sale property. This can put pressure on both the equity position and borrowing capacity.
When shading occurs, it may be possible to find a lender who does not shade the valuation but has other hurdles to clear for approval. It is only a small niche of lenders who offer bridging finance, and some only offer it to existing customers. The team at Aviser Finance have a great deal of experience with Bridging Finance and can provide you with expert guidance, no matter where you are in your finance journey.
If you want to learn more about Bridging Finance, or need advice on what financing options are available to you, contact Aviser Finance today to get started!