Bridging finance is quite simply borrowing to buy a second property while not yet having sold the first. So, how do you get it? And why are banks reluctant to give it out?
When considering bridging finance your bank will assess your application primarily based on two factors: your income and your equity. Your pleadings that I'm going to sell house number-one will unfortunately fall on deaf ears because, from the bank’s perspective, it's not sold until it's sold—and there's no guarantee that you will sell.
So, what are your options?
1. Sell house number one first and take the risk that you will then go on to find house number two.
2. Put in an offer on house number two with a clause subject to the sale of house number one (not really going to work in the current Wellington housing market).
3. Use a non-bank lender.
Non-bank lenders or specialist lenders have the ability to assess loan applications with different criteria. In a simplistic explanation, equity is more important to non-bank lenders than income. So, if you own most of house number one, and want to borrow all of house number two before you sell house number one, then a non-bank will most likely agree (subject to the appropriate criteria etc.).
If bridging finance sounds like the best next step for you (or someone you know) please get in contact with us—especially before agreeing to buy house number two!
Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.