Buying and Selling property with Bridging Finance
Bridging finance is usually required when a buyer needs to settle on the purchase of their new property, before the settlement of their existing property occurs. This can happen for the following reasons;
- They have seen their dream home and decide to purchase before they have sold their existing property.
- Contracts for sale maybe in place for both the property being sold and the property being purchased, but the settlement of the purchase has to occur prior to settlement of the sale.
In both cases, the purchaser needs to pay for the new property plus purchase costs such as stamp duty etc, before they receive the sale proceeds from their existing property. This can be facilitated by the use of bridging finance. Essentially the bank or lender will take both properties as security and lend the purchaser enough funds to cover the purchase price and costs.
Bridging finance is normally a short term loan. Up to six months is a typical timeframe. Within that period of time the purchaser needs to sell their existing property and pay off the bridging finance.
If the purchaser has taken the risk of signing an unconditional contract to purchase another property before selling their existing property they are exposing themselves to a degree of risk with bridging finance. If they have difficulty selling their existing property and the bridging finance period is getting close to ending, they may be forced to reduce the selling price below what they require. This can create significant stress and financial loss and is not a suggested course of action.
Also be aware that not all banks and lenders offer bridging finance. If yours doesn’t and you need it, you may have to change your lender to make it work.
Some thought and planning needs to go into the selling and buying process to ensure you don’t get caught out.
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