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  • Writer's pictureVousfinancer

RELAY LOAN : Operation...

Are you an owner and would like to sell your property to acquire a new main residence ? The bridging loan allows you to make the transition between receiving funds linked to the sale of your current property and financing your new home. Focus on this highly requested credit!

Bridging loan : the principle

The bridging loan is aimed at people who already own a property and who wish to resell it to acquire a new one. It was designed by banks to respond to the problem of cash flow gap between the sale of one property and the purchase of another.

The bridging loan is a short-term loan (maximum two years). This is an advance from the bank to finance the new home.

It works on the principle of deferred repayment . As long as the first home is not sold, the borrower only repays the interest on the loan and the borrower's insurance. The capital is only paid after the sale of the property, without any early repayment penalty.

Good to know  : it is possible for certain borrowers, depending on their situation and the banks' policy, to only pay the amount of interest and insurance when the property is sold , we then speak of a bridging loan with total franchise.

What are the advantages of the bridging loan ?

The bridging loan allows :

  • to finance the purchase of a new home without waiting to have sold your current home and received the funds corresponding to the sale ;

  • not to go through rental accommodation between the sale of the old property and the purchase of the new one and thus avoid a double move;

  • not to repay a double monthly loan payment (current real estate loan for the old property and loan taken out for the new property).

How is the amount of a bridging loan  calculated?

In most cases, the bridging loan represents 60 to 80% of the estimated value of the property to be sold. If the borrower still has an outstanding loan, the amount of capital remaining due is subtracted from the loan amount. 

The amount of the bridging loan is freely determined by the bank, depending on the state of the real estate market at the time of taking out the loan.

If the sale of your old home is well advanced, for example if you have signed a sales agreement, the bank can offer you a shorter loan and a more advantageous amount (up to 90% of the sale price of the property).


What is the rate for a bridging loan ?

The interest rate for a bridging loan is often higher than that for a traditional home loan . It depends on the duration of the loan and the state of the real estate market and banking standards in force at the time the loan is taken out. 

You can consult the current rates on our page dedicated to real estate loan rates and updated every month.

How to get a bridging loan ?

To benefit from a bridging loan, the borrower can contact their bank directly and approach other banking establishments.

To benefit from the best rate in force and the most advantageous borrowing conditions, the borrower can contact a real estate loan broker like Vousfinancer .


The different types of bridging loans

There are two types of bridging loans :

The dry bridging loan

The dry bridging loan is a short-term loan . It is used when the new home purchased has a value less than or equal to the property sold. The sale of the current property is enough to finance the purchase of the new property. We can consider the dry bridging loan as a simple cash advance . Once the property is sold, the bridging loan is paid directly.

The back-to-back bridging loan

The bridging loan backed by a long-term loan . It is used when the sale of the current home will not be enough to cover the purchase of the new home. For example, if the buyer buys a larger property. The back-to-back bridging loan makes it possible to smooth out the two loans : the bridging loan and the real estate loan taken out to finance the new purchase.


Bridging loan : point of vigilance

The main risk of the bridging loan is not selling the property during the two years following its subscription. Once the period has expired, the borrower owes the bank the sum advanced as well as the monthly payment for the new property. If he has not sold his old home, he will therefore find himself paying two loans simultaneously !

Also, it is important to ask yourself questions when your old home is not sold after a few months on the market: sale price, promotion of the property, exposure on the Internet or in an agency… In all cases, being supported by real estate professionals may be necessary.


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