Bridging Loans: A Flexible Solution for Property Buyers

Bridging loans are short-term loans that enable the client to purchase a new property before completing the sale of their existing property, thereby ‘bridging the gap’ or time difference between these two events. This ensures that the purchase is funded without any negative consequences associated with quickly selling an existing asset.

What makes bridging loans different to other loans?

• They are short term in nature. A bridging loan can be repaid within weeks of financial close and generally do not exceed 12 months.
• Servicing or refinance is not a primary exit strategy. The lender relies on the sale of the existing asset to either distinguish or amortise the peak debt facility. In many cases, servicing is not evident on a bridging facility hence the exit strategy is reliant on the sale of another asset.

What security is required for a bridging loan?

No different to other real estate loans, security for a bridging facility is a registered mortgage over the property. A lenders preference is generally a registered first mortgage over both properties. In circumstances where there are two different lenders, then a first mortgage over one property and a second mortgage over the other would be required.

What are the lender’s risks in providing bridging finance?

In most cases the peak debt (combined repayments on both assets) cannot be serviced by the borrower. The renders the sale of an assets as the most probable option to discharge or reduce the debt.

As part of the due diligent process the lender needs to consider: 

• Market risk – including wider macroeconomic factors and specific property market (market segmentation) risk.
• Any factor that can affect an asset’s marketability – environmental factors, state of repair, location etc.
• Is the property campaign being run correctly? Is the vendor using a real estate agent to sell the property?
• Are the clients realistic about the market value and sale price?
• Delays in settlement. The right buyer may need extended settlement terms.
• Credit Risk – does the client have capacity to service / refinance any residual debt following the sale of an asset.

Bridging at Vado Private

Vado Private offers bridging finance for loans primarily for business/investment purposes.

Vado Private can settle quickly – this is always a key factor for bridging given the short turnaround time for a contract period.

The advantages of working with Vado Private are:

• Quick credit decisions and turnaround times
• Sensible LVR’s based on security type
• Flexible application fee structures based on loan term
• No exit fees.

For assistance

We would love the opportunity to chat to you regarding any scenarios or questions you might have for any of your clients seeking bridging funding. Please contact the Business Development team at Vado Private to discuss any opportunities on the details below, or you can submit a scenario online via our website.