What is a bridging loan and how do they work?

Are you in a situation where you need quick access to funds for a new property purchase, but your current assets are tied up in another investment? Or perhaps you’re in the process of selling your home and want to secure your dream house before someone else snatches it up. In such scenarios, a bridging loan could be the financial tool you need to bridge the gap between your current situation and your future plans.

In an effort to unravel the mystery of bridging loans and explain how they work, Starts at 60 CEO Wendy Harch recently spoke to the Head of Distribution at Bridgit, Stephen Doyle to empower you with the knowledge to navigate this area of financing with confidence.

Q: What is a bridging loan?

A: “Look, it’s very easy to understand what a bridging loan actually is. It gives the clients the opportunity and solution to buy a property now and sell their property at a later date,” Doyle says.

“So it gives them the opportunity to actually take the property off the market. And as I said, it gives them a period of six months to be able to sell their property. Usually, they would sell their property within a three-month period. The average term is about three months.”

Q: Why do people do bridging loans rather than just getting a personal loan?

A: “Look, it’s probably easier to understand if I give you some examples of some individuals that have actually looked at bridging. The downsizer market is a classic example,” Doyle explains.

“So if you actually look at downsizers, I’ll give you a couple of examples. And one that has used bridging and they’ve been successful and one that actually wished they did bridging and the pitfalls they fell into because they didn’t. So let’s first look at someone who actually should have used a bridging loan, and this is actually a personal friend of mine who I know very, very well. A couple. They live in the north of Sydney and they have a very large property.

“They had a very large property and the property was worth something in the region of about $3 million and they still had $1 million left on that property in a mortgage. Anyway, what they wanted to do was they wanted to downsize and actually go into a property and become debt-free quite effectively.

“Now they still had two boys, teenage boys, who were at school in the local area. They put their property on the market and everything went well. They got offers and everything was absolutely fantastic. But then what happened when they were actually selling their property, the property they wanted to buy started going up in value. They couldn’t take it.

“It got snapped up. And then they got into a situation where they had nowhere to live. So they sold their property. They’d actually gone down that path. They hadn’t secured the property that they were actually going to go into. And then it suddenly became a situation where, oh my gosh, what do we actually get?

“So what they actually did was they moved into my friend’s brother-in-law’s property. Six months later, they were still there. They couldn’t find a property in the actual area. They then were looking at properties outside of the area. The children then had to move schools. The children were 16 and 15 at that specific time, at a very important time in their lives.

“And then it started to snowball. They had to rent. It cost them a fortune. Meanwhile, property prices are going up the whole time. The property price is going up when the whole objective is to actually become debt-free. That became even more difficult.”

Q: So what about a good news story, someone that you know who’s bridged that’s worked out?

A: “So a lady aged 65… lived in a property in the northwest of Sydney. And the lady’s property was a very large property,” Doyle begins.

“She was now living there by herself and rambling around this property. Her family had moved up to Queensland, this great area, and what had happened was she had a dream.

“And when you dream and you’ve got this vision of a property that you love, you want it to be that property. The property was valued at three and a half million dollars. The property she bought was on the Sunshine Coast, valued at 1.5. She decided to bridge.

“She took the beautiful property that was on the beach on the Sunshine Coast and basically moved in easily. She then had time to sell her property, which she did within a three-month period, and it was stress-free.

“She moved straight into the property, was able to actually secure it, walk in, have the removalists take her up to the Sunshine Coast – very, very happy – and then had the appropriate amount of time to dress the property, do what needed to be done, and actually took absolutely all the stress away from that.

“And the bridge facilitated that solution for that individual. As I say: uncomplicated, stress-free.”

Q: You kind of already answered the question, but I thought maybe we could finish up by dispelling the myths around bridging loans. Are bridging loans complicated?

A: “No. They’re not. They’re definitely not complicated,” Doyle says.

“They’re very easy to actually do. So when you actually apply for a bridging loan, the application is online, it is a five-minute application, and the approval for that is basically within an eight-hour period. So you’ll know, one way or another.”

Q: Is it expensive to go down the path of getting a bridging loan?

A: “No, it isn’t. Products now in bridging loans, especially ours, is a regulated product, very transparent in pricing. 10 years ago or 15 years ago, yes, it was done by private funders, et cetera, and it could be expensive,” Doyle explains.

“Today, it’s not expensive. It is highly regulated now. So that, again, takes the stress out of it as well.”

Bridging loans can offer a lifeline for those who want to secure their dream homes without the burden of stress or complication. As Dolye highlights bridging loans can be a seamless transition from one property to another, dispelling myths of complexity and expense.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.