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Relay loan: operation, risks and particularities

Short-term credit, the bridging loan helps the individual to make the link between a property to sell and a property to buy. The bridge loan is an aid in a sometimes delicate transition period. There are several bridging loans and each of them adapts to a specific situation. It is nevertheless advisable to know all the characteristics of the bridging loan, which costs money and which commits you, since as the name suggests, it is a loan!

What is a bridging loan?

A bridging loan is used when you buy real estate, but you still haven’t sold the one you own. If in absolute terms, it is better to sell your property in order to have the corresponding sum, then buy another, on a daily basis, it is not always easy to make the sale of a property coincides with the purchase of another. The bridging loan is there to help you during this transition period.

It represents a solution and helps to overcome cash flow problems between the time you sell your home and the time you buy another. Granted for a few weeks or a few months, the bridging loan generally does not exceed 24 months.

The different types of bridging loans

bridging loans

There are 3 different types of bridging loans, namely:

The bridge loan with total deductible

Designed to lighten your expenses during the entire period when your property is not sold, this type of bridging loan is granted for a maximum duration of 24 months. Generally, the bridging loan with full deductible is intended for owners wishing to borrow an amount greater than the value of their property for sale.

As the name suggests, the total franchise bridge loan comes with a total franchise period of up to 12 months. It is also accompanied by an amortizable credit. Here, interest is therefore not reimbursed monthly, but in one installment. If the owner sells his property before the end of the 12 months, he will have to repay the capital as well as the interest due.

The bridging loan backed by an amortizable loan

Also called an “associated loan”, the back-to-back bridging loan is for owners who wish to buy a property whose price is more expensive than the one they put up for sale. Most often, the back-to-back bridging loan is coupled with a conventional mortgage, repayable for future housing.

The price of this bridging loan is set between 50% and 70% of the price of the property offered for sale and therefore acts as a supplement. While waiting to sell his first property, the owner pays the interest on his bridging loan as well as the monthly mortgage payments. Before committing to a back-to-back bridging loan, you should carefully check your debt capacity.

The dry relay loan

The dry bridging loan is intended for owners whose value of the property for sale is equivalent (or lower) than that of the property to buy. It is very often used by seniors who change their accommodation. Here, you will not need an additional loan. The dry bridge loan offers you the possibility of advancing the funds for your new purchase and it will allow you to have no prepayment penalties.

With a dry bridge loan, you repay the bank, either by paying the capital and the interest once the sale of your current property is finished, or by paying the interest as soon as the loan is signed and you will pay the capital after the sale . The dry bridge loan is considered a short-term advance, between 6 and 12 months.

What is the cost of a bridge loan?

credit loan?

For each type of bridging loan, do not forget to add the guarantee costs (such as the mortgage), borrower insurance costs, application fees, notary fees and prepayment fees (IRA)), except for the dry relay loan. The mortgage rate itself depends on your banking establishment and current trends.

In terms of loan amount, the bank will grant you a bridging loan depending on the amount of the property put up for sale and will generally lend you between 50 and 70% of this amount, or even up to 80% for certain banking establishments.

In addition, there are interim interests that represent the remuneration of your bank in exchange for the provision of your bridging loan. The rate of these interim interest is most often the same as the mortgage rate. If the loan is granted at 2%, the interim interest will therefore also be 2%. Finally, it should be noted that the interest rates for the dry bridge loan are higher than for the other two types of bridge loans.

Risks related to the bridging loan

credit loan

The risk most often encountered remains the fact of not having successfully sold your property at the end of the bridging loan. In this case, the borrower will not be able to repay his bridging loan. He will then have to renegotiate with the bank either to extend the initial bridging loan, or to transform it into conventional long-term credit, and will have to pay the remaining interest due.

Another risk is then to sell your first property much cheaper than the market price so that you no longer have to pay the monthly payments on the bridging loan. This solution may unbalance your budget.

Finally, you must not forget the daily stress, the bridging loan can be difficult to live with, because it represents a real “sword of Damocles” above your head.

Bank loan: what alternatives to the bridge loan?

Bank loan

As a little-known device, the repurchase bridging loan or “resale repurchase” loan proves to be a real alternative to the traditional bridging loan because it offers a lower debt ratio. The principle remains simple since the borrower has his already existing home loan repurchased by another banking establishment, an establishment which will offer him a new credit integrating both the monthly payments remaining due from his old credit and the financing of his new real estate. Thanks to this, the borrower will benefit from only one line of credit, and at a single interest rate. This monthly payment may be smoothed depending on the resale of the first property.

However, it will be necessary to be careful, because overall, and even if the debt ratio is lower, this formula will cost more.

Finally, there is an alternative to the more original bridging loan, which consists of selling your property to an express real estate agency. Mainly active in Île-de-France, this type of company makes an offer to purchase in 48 hours after the appraisal. The express real estate agency does not have the same right of withdrawal as an individual and therefore cannot request the cancellation of the sale.

The offers from express real estate agencies correspond to the market price deducted from fees slightly higher than those from a traditional real estate agency. The sale is completely secure and avoids taking out a bridging loan.

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