The bridging loan is a short-term loan, which allows you to get an advance on the amount of a property to sell to buy another. Therefore, thanks to the bridge loan, you can finance the purchase of a new property before the resale of the previous one. Just before confinement, you had to sign the deed of sale of your future property. But you were also selling your current home. Your boxes were done and you already had everything planned for your move. The Coronavirus crisis has turned your plans upside down and you are wondering how to manage this? Solutions exist to facilitate this transition with complete peace of mind during this very special period.
What is a bridge loan?
The bridge loan is the solution for people who want to buy a property before selling the one they already have. Indeed, the repayment of the capital is deferred. Thus, as long as the old property is not sold, the borrower does not repay the capital. During this period, he pays only the interest on the loan amount as well as the monthly payments from the borrower insurance. Once the old property is sold, the principal owed is reimbursed in one go.
In general, a bridging loan lasts one to two years. Which in theory leaves time to sell the old property. Note, however, that banking establishments only lend between 50 and 70% of the estimated value of the property. Indeed, they secure the transaction in case your property does not sell at the fixed price. If the property is sold at a lower price, the bank has guaranteed its safety margin upstream. On the other hand, if you already have a commitment or a promise to sell, the bank can increase the amount of the bridging loan.
Can we request the suspension of a bridging loan during confinement?
If a bridge loan was taken out before confinement, it is possible to request a suspension of monthly payments from your bank. But this will affect the term of the loan and the costs involved. In any case, the banks must adapt to this exceptional situation. The Alexandra Balurak, spokesperson for Lite Lending, points out, the banks are “easing their conditions to best support their customers in this particular situation”.
Please note that the processing times for applications are currently being extended. Indeed, given the lack of staff present in banking establishments and the numerous requests for credit deferrals, banks are overwhelmed.
I have a bridge loan in progress, should I worry?
A priori, there is no need to worry about your bridging loan. Even if the real estate market is likely to be on pause for a few weeks. For two years, the real estate market has been very dynamic. Sales times are on average 75 days for cities with more than 100,000 inhabitants. Slightly longer in rural areas and much shorter in tense areas. As a result, it is rare for bridging loans to last more than six months. Most of these credits are taken out for a period of one year, renewable once.
So, if you reach the end of the first period of a year, don’t panic. You have the option of renewing this period for one more year. And you will have the time necessary to sell your old property.
If you reach the end of the two-year period, which is rare, you can find a solution with your bank. Given the unprecedented context in which we are currently, the bank will be able to pass your bridging loan into repayable credit. You can also rent your property while waiting to find a buyer.
Anyway, given the current context, you will have to wait until the end of confinement to sell your property. However, consider the probability of lowering the sale price a bit so that it can happen quickly. However, don’t worry. As we saw above, the banks calculate the relay by ensuring a safety margin. As a result, you will not be in difficulty even in the event of resale with a price reduction of more than 10%.