Bridging Finance - How is it assessed?

Discussion in 'Loans & Mortgage Brokers' started by Harry30, 11th May, 2019.

Join Australia's most dynamic and respected property investment community
  1. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    How do banks assess bridging finance if you plan to upgrade your PPOR? Consider the following example.

    Person intends to buy a PPOR for $3.5m.

    You have $350k cash for the deposit, and need to borrow $3.35m ($3.5m - $350k deposit + ~$200k in stamps).

    Once you buy, you plan to the sell your existing PPOR for $2m (debt free). Plus, you also plan to sell x1 IP ($1.5m - $750k debt = $750k equity).

    So, end debt is $600k ($3.35m - $2m PPOR Sale - $750k IP sale).

    Two questions:

    1. Will the bank lend you $3.35m but assess servicing based on the end debt - ie 600k?

    (Final LVR = 600/3,500).

    2. Can bridging finance work on the basis that you will buy, then sell x2 properties, or is this a level of complexity a mainstream lender will not consider
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    33,583
    Location:
    Australia wide
    1. Yes with one lender at least.

    2. Don't think so
     
    Harry30 likes this.
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    7,911
    Location:
    Gold Coast
    End debt servicing is provided by a few lenders, but that doesnt mean that such deals arent doable with others.

    Quite a few will look at your Servicing shortfall at peak debt, and if you have cash to cover the shortfall for the bridging period will entertain the game/

    havent done a bridge with more than one security, an interim position here might be to see if one has servicing to still carry the IP debt, and borrow some more on the new PPOR.

    Most lenders have a 6 mths window, some have 12, they can get pretty nasty if one doesnt sell in that timeframe. yes credit will extend those periods, but it can get dicey

    ta
    rolf
     
    Harry30 likes this.
  4. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    Thanks all. Sounds like you need to get away the x1 IP ahead of the deal happening.
     
  5. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    I had a look at this option - ie. servicing assuming you carry the IP debt. Based on some quick calculations, only works IF:

    1) Servicability based on the end debt (after sale of PPOR),

    AND

    2) Existing debts (other IPs) based on actual repayments (P&I) and not grossed up based on 7.25%.

    Any lenders meet that criteria?
     
  6. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,134
    Location:
    Adelaide, SA
    Who the existing debt with?

    1. Yes bank will lend on end debt, but also need to factor in shortfall for peak debt.
    Example 12month bridging, servicing shows $5k per month fail x 12months = $60k needed cash to cover shortfall
    In some cases this can be borrowed, in turn might increase end debt.
    2. Can be multiple properties, noted might be lower value used in calculations for debt reduction (instead of $2M sale bank consider 90% being $1.8M)
     
    Harry30 likes this.

Are you an Aussie investor? Track all your trades, dividends, portfolio, CGT & more in one place with Sharesight. Ditch your spreadsheet & try the award-winning Australian portfolio tracker and tax reporting tool for FREE today.