Property Bridging Finance: A Lifeline for South African Property Sellers
Navigating the South African property market can be daunting. Whether it’s purchasing a new home or handling financial responsibilities that come with selling a property, cash flow management is often a key challenge. One solution that provides significant relief to property sellers is property bridging finance. This article will explore how bridging finance can assist homeowners who have recently sold their property in South Africa, acting as a buoyant aid in transitioning from one property to another.
What is Property Bridging Finance?
Bridging finance is a short-term loan, designed to bridge the gap between the sale of a property and the receipt of the funds. Property owners who have recently sold their home might experience a delay in receiving the proceeds due to the lengthy process of transfer, registration, and other administrative procedures. Bridging finance provides a temporary cash flow solution during this waiting period, allowing property sellers to meet their immediate financial needs.
Why Consider Bridging Finance?
The major advantage of bridging finance is the provision of immediate liquidity. Sellers can receive an advance of up to 75% of the sale proceeds from their property, which can be used in various ways to facilitate the move to a new property or handle outstanding costs.
Covering Deposit for New Property
The funds obtained through bridging finance can be used to pay a deposit on a new property. This is particularly helpful for individuals who have found their next home but do not have the immediate funds to secure it. The bridging finance enables them to meet the deposit requirements, thereby ensuring the purchase agreement can go ahead without any hitches.
Property owners looking to renovate their new property can benefit immensely from bridging finance. Renovation costs can be sizeable and often need to be paid up front or during the renovation process. With bridging finance, sellers can access a significant portion of the sale proceeds before the transaction is finalised, enabling them to kickstart the renovation project without delay.
Settling Municipal Rates and Levies
A typical part of any property sale in South Africa is the payment of municipal rates and levies. Sellers may be required to pay an advance on the rates and levies for the new property they are purchasing or cover any outstanding rates and levies on the property they have sold. With bridging finance, sellers have immediate access to funds to settle these expenses, ensuring smooth property transfers.
Covering Transfer Duty Costs
In South Africa, transfer duty is a tax paid by the buyer on properties acquired, but it may sometimes become the seller’s responsibility if it’s stipulated in the sale agreement. The bridging finance can be used to cover this expense if needed, ensuring no unnecessary delays in the transfer process.
Dealing with Levy Advances/Stabilisation Fees
When purchasing into a sectional title development or a property within a homeowners’ association in South Africa, buyers are often required to pay a levy advance or stabilisation fee. Bridging finance can provide sellers-turned-buyers with the necessary funds to cover these costs, further facilitating a seamless transition between properties.
Navigating Bridging Finance in South Africa
Before deciding on bridging finance, it’s vital to understand the specifics of these loans. Bridging finance is typically provided by specialized finance companies rather than traditional banks, each with their own set of terms and conditions.
To qualify for a property sold bridging loan in South Africa, the property sale must be concluded with all suspensive conditions met. The loan amount depends on the net proceeds of the sale and the finance provider’s policies.
Property Bridging Finance Application Criteria
As long as the attorney handling the transfer is prepared to sign a Letter of Undertaking that the purchaser has put up guarantees, that all suspensive conditions have been met and that funds will be dispersed to the bridging company on transfer, then it is possible to arrange an advance of your profit i.e. property sale proceeds advance.
Minimum Term – When property transfers
Maximum Term – 3 months
Minimum APR – 48 %
Maximum APR – 54 %
Loan R 100 000
Term 65 days
APR 48 %
Repayment R 108 645
Subject to lenders Terms and Conditions at time of quote.
FAQs about Property Bridging Finance in South Africa
Q: What is property bridging finance?
A: Property bridging finance is a short-term loan designed to ‘bridge’ the gap between the sale of a property and the receipt of the funds from that sale. It allows property sellers to access a portion of the sale proceeds before the transaction is finalised and the funds are formally available.
Q: How much can I borrow with property bridging finance?
A: You can typically borrow up to 75% of the net proceeds from the sale of your property, subject to the terms and conditions of the specific finance provider.
Q: Can I use the funds from bridging finance to pay for a deposit on a new property?
A: Yes, the funds obtained through bridging finance can be used to pay a deposit on a new property. This can help secure your next home while you’re waiting for the funds from your property sale to be available.
Q: Can I use bridging finance to cover renovation costs for my new property?
A: Absolutely. Bridging finance can provide you with immediate funds to cover renovation costs, so you can start on necessary upgrades or improvements without delay.
Q: Can the bridging finance funds be used to pay municipal rates and levies?
A: Yes, bridging finance can be used to settle outstanding municipal rates and levies associated with your sold property or the new property you are purchasing.
Q: Can I use bridging finance to cover transfer duty costs?
A: Yes, if transfer duty costs are your responsibility as per the sale agreement, the funds obtained from bridging finance can be used to cover this expense.
Q: How can bridging finance help with levy advances/stabilisation fees?
A: If you’re purchasing a property within a sectional title development or a homeowners’ association, you might need to pay a levy advance or stabilisation fee. Bridging finance can provide the necessary funds to cover these costs, facilitating a smooth transition.
Q: Who provides bridging finance in South Africa?
A: Bridging finance is typically provided by specialized finance companies rather than traditional banks. It’s important to research and compare terms across different providers to find the best fit for your needs.
Q: What are the qualifications for bridging finance?
A: To qualify for a bridging loan in South Africa, your property sale must be final with all suspensive conditions met. The loan amount also depends on the net proceeds of the sale and the specific policies of the finance provider.
Q: How do the interest rates for bridging loans compare with traditional loans?
A: The interest rates on bridging loans are often higher than those on traditional loans. This is due to their short-term nature and the risk the lender assumes by providing funds before the sale transaction is formally complete. However, they provide much-needed liquidity to handle immediate expenses.