Bridging Loans

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Bridging Loans

As the term suggests a “bridging” loan is one that joins two places – in this case, property.

Often when you are buying your second (or subsequent) owner-occupied property you need to sell the property you are currently living in to fund the deposit on the new place you have purchased. Ideally, the timing works so that you sell your current home on the same day that you purchase your new one but sometimes the timing does not allow this to happen.

When the sell-buy timing does not line up there are two, distinct, types of bridging loans.

Closed Bridge

This situation occurs when you have sold your current property unconditionally and have a defined settlement date for it. At the same time, you have purchased a new property and this purchase settles before the sale of your current property.

For the time between you moving into the new home and selling your current one that you own both properties – and carry the debt against them as well. This presents a unique situation for the bank in that you may well be carrying too much debt, for that period, as judged by what the bank says you can afford. This is effectively breaking their lending rules, but it is allowable (under certain circumstances) because we can prove to the bank that this will be for a specific period only and when you settle on your old property the debt load will return to within the allowable limits.

Open Bridge

This type of bridging loan happens when you’ve purchased a new home with a set settlement date, but you have yet to sell your current property. You still need the funds for both properties, but the problem is that you do not know how long you’ll need them as you have no definitive date for the sale of the current property. This presents a lending problem for the bank as they would be lending you extra funds with no guarantee of timeframe when it would be paid back.

Currently, the trading banks do not lend in this situation.

There may be other options available using other lenders for example so if you are faced with either of the above scenarios then please get in contact.

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