Featured
On Show
BRIDGING THE FINANCIAL GAP BETWEEN SALE AND TRANSFER
Category Market Advice
The sale of a property doesn't happen overnight and there are numerous considerable costs involved along the way - even more so if you've had to fix any defects or update an older home before placing it on the market.
So, for many people, the period between the sale and the transfer can be a financially constricted time, often leaving sellers cash strapped and with no accessible capital for other expenses.
And if the conclusion of the sale is even further delayed, which is not as uncommon as one would like to think, it can be financially crippling with sellers unable to afford additional costs like school fees or even the basics like food and electricity.
At times like these, bridging finance can be the ideal solution as it gives sellers breathing space by enabling them to have access to cash before the registration and transfer process has been completed.
What is bridging finance?
Bridging finance is a short-term loan created specifically for real estate as the current home serves as collateral to secure the loan amount and, as a rule, is only advanced to sellers once they have sold their properties and the conditions of the sale have been met, with the average loan period being 45 days.
There are, however, some lenders who will advance money to those who have been granted a new bond on an existing property, a second bond, or who have switched banks and are waiting for the new bond to be registered.
Companies offering this service often provide a competitive rate and the turnaround time is usually quick due to the fact that monies advanced in this manner are secured by the proceeds of the sale of a property.
How does it work?
It's a completely separate transaction to the bond application and is subject to different criteria, the most notable being that the seller's credit rating is less important than the fact that the seller has equity in their property, with the sale price less transaction costs being greater than the mortgage bond.
The loan is then simply repaid by the conveyancing attorney upon registration and transfer from of the net proceeds due from the sale price, leaving the seller free to get on with the business of moving.
Although bridging finance is a financial loan, it is tailored to a specific market and industry only and is therefore not processed by banks or bond originators.
What to watch out for
The Bridging Finance product is very different from micro lending and also less regulated by law so it's essential to only use reputable companies which are registered with BFASA and which provide clients with a comprehensive quote, including a thorough breakdown of costs associated with the transaction.
Because one of the biggest dangers associated with raising finance through a less than reputable bridging finance company is hidden costs which can be a nasty surprise down the line. Find out if there are administration costs, what interest will be levied, and so on because this type of financing can be expensive.
It's also preferable to work with a company that specialises in the area of bridging finance rather than a legal firm which has in-house bridging finance operations as there could be a conflict of interest under certain circumstances.
Attorneys cannot be money lenders in a transaction and also purport to act in the best interests of the buyer and seller. There is always a conflict of interest in this situation.
Although bridging finance is the speediest, most flexible solution for easing the financial burden of sellers when most needed, it can also be costly so don't apply for more money than you need and take the loan for the shortest period possible while capital is being freed up."
For more information on bridging finance, documentation, rates and available deal structures, visit www.bfasa.org.za
Author: Lew Geffen Sothebys International Realty