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What is Property Bridging Finance?

A bridging loan or “bridging finance” is a short term loan, typically taken for a short period between 2 weeks and 12 months with a view to moving to longer term financing or exit strategy.

Bridging loans are generally used in property purchases / acquisitions when a decision needs to be made quickly. Bridging loans can help too:

• Stop property getting repossessed
• Take advantage of a short term opportunity
• Purchase your dream home whilst you wait for your current home to sell

Bridging loans are generally repaid when a property has sold or alternatively refinanced through a traditional lender. A bridging loan is known in the lending market a non-standard loan as its a short term loan with unusual circumstances.

Bridging loans in the South Africa can be used not only for property, but also for businesses too. For businesses, bridging finance is generally used when a company requires additional funds to help boost its cash flow or for acquisition purposes. Bridging loans for property can be used to break property chains and provide a short term finance solution where there is a delay between sale and completion dates.

Another typical reason why bridging loans are taken, is when properties are purchased at auction, additionally developers & landlords can use bridging finance for development or renovation purposes.

Advantages of Property Bridging Finance

Advantages of Bridging Finance

• One of the biggest advantages of bridging finance is that it is finance strictly over a short term period. If you compare a bridging loan against a mortgage from a bank or building society, a mortgage is geared as a long term financing product which obviously attracts long term expenditure. Bridging finance can be arranged from as little as 1 week up to 12 months.
• An advantage of a bridging loan is that your credit profile can be improved significantly if you make all of your repayments on time.
• Advantages of bridging loans is that it enables you to purchase a property quickly. A bridging loan through a mortgage lender is typically completed within 2 weeks, compare that to a residential mortgage (average 2.5 months), there is no real comparison
• Bridging finance can be secured quickly to purchase a property, with a view to getting longer term finance when you are ready.
• A guaranteed quick house sale, with no broken chains or mortgage offers been pulled by lenders.
• Advantages of bridging finance is that the bridging loan effectively makes you into a cash buyer, which in turn can improve your negotiating power for your onward purchase.

Bridging Finance in South Africa

In South African law immovable property is transferred via a system of registration in public registries known as Deeds Offices. Given the delays resulting from the transfer process, many participants in property transactions require access to funds which will otherwise only become available on the day that the transaction is registered in the relevant Deeds Office.

Bridging finance companies provide finance that creates a bridge between the participant's immediate cash flow requirement and the eventual entitlement to funds on registration in the Deeds Office. Bridging finance is typically not provided by banks.

Various forms of bridging finance are available, depending on the participant in the property transaction that requires finance. Sellers of fixed property can bridge sales proceeds, estate agents bridge estate agents' commission, and mortgagors bridge the proceeds of further or switch bonds. Bridging finance is also available to settle outstanding property taxes or municipal accounts or to pay transfer duties.