PROPERTY BRIDGING FINANCE
WHAT IS BRIDGING FINANCE?
Bridging finance is a financial service – a short-term loan – that bridges the time between when a transaction has been signed and when payment is made. It can be used in many situations but is most commonly used in personal-injury claims and property deals.
What is property bridging finance?
Property bridging finance is a service that allows property owners, sellers and estate agents to access their funds earlier in the process. The proceeds from a sale of a property or from a new or further bond become available to the owner, seller or estate agent only on registration of the transaction at the Deeds Office – a process that can take anything from 30 to 90 days, and occasionally even longer.
But many people need the proceeds sooner than this in order to pay deposits on their next property purchase, for paying relocation costs and transfer duties on their new properties or for other pressing expenses. For them, bridging finance can take the stress out of buying and selling (and is sometimes the only way they can afford the purchase of a new property) by helping eliminate the waiting period for funds.
Who needs property bridging finance?
Sellers can make use of bridging finance in order to pay relocation costs, arrear rates and transfer duties on their new properties. In many cases they have specific debt, such as school fees and consumer debt, which urgently need to be settled.
Buyers – if they are also sellers – can use bridging finance for the same reasons.
Agents, principals and licensees can also use bridging finance if they need advances on their commission.
How can bridging finance help secure a sale?
In many cases, buyers need to put down a deposit on their next property. If they are expecting proceeds from a current sale, they can access these funds through a bridging-finance company. Buyers often don’t realise the considerable costs associated with buying a property. Before a conveyancer can effect transfer of a property, the buyers will need to pay transfer duty (where applicable). If the buyers need to raise cash to do so, it can be bridged on the sale of their current property.
Sellers usually have to settle rates in arrears, while buyers have to pay rates in advance for the first few months. These costs can also be bridged on the sale of the property
How can bridging finance help the agent?
In addition to being a useful tool for buyers and sellers, bridging finance can also benefit estate agents. Firstly, in many bridging finance companies, agents, principals and licensees qualify for short-term credit, meaning that they can, through bridging finance, access their commission, or part thereof, before the transfer is registered at the Deeds Office. Secondly, many bridging finance companies offer agents, principals and licensees commission on the loan if they refer a client to them, so it’s worthwhile finding out which reputable companies offer bridging finance and building a relationship with them.
Why not turn to a commercial bank for a loan instead?
Transaction turnaround times in bridging finance are usually very fast, and commercial banks are not usually set up to deal with short-term loans, nor are their systems geared towards lending money quickly.
Bridging finance is a short-term transaction and accordingly is more expensive than normal banking rates. Bridging finance is also charged on a daily rate and therefore the term of transaction should be kept to a minimum. The shorter the term the cheaper the cost of finance, so you should always obtain bridging finance on the last day possible.