Bridging loans

What's the most flexible bank for these (in terms of keeping costs down)?
I'm with suncorp and they don't offer it. It's hard to find much info on the products online. Any banks offer a decent rate and have an offset option?

 

westpac

 

Hmm person at westpac said no offset and must be IO. Thanks I'll recheck with them.

 

In the past few years I've done bridging finance with all the major banks and a couple of second tier lenders.

It's not really a product in itself, it's more about structuring the loans and policies to solve a problem. In many cases the rates are the same as you'd usually pay for the same product. Some lenders do it better than others, some not at all.

Bridging loans tend to be IO during the bridging period to keep things simple and to keep costs down. Often people will have trouble meeting the repayments during the 'peak debt' period so having the loans as IO is more likely to give them better cash flow at this time. In most cases the loan would become P&I when the first property is sold and the debt reduced.

 

If it is IO you can always pay it as if it was PI.

 

Do most banks (take big 4) assess bridging loans for servicing based on end debt (ie. final debt following sale of property?)

 

I think only St G and Westpac do.

 

Take CBA. Let’s assume the bridge is only for a short period. That is, you have already sold house, but won’t settle until (say) 2 months after purchase of new house. And you can show that you can meet additional repayments for that 2 month period from cash you have.

 

This is a fairly common policy. I can confirm CBA, NAB & ANZ all use this. I haven't lodged a Westpac bridging loan in a long time though. Quite a few second tier lenders also require a cash buffer calculated in a similar way.

 

This can be either
- Existing home loan customer CBA/Bankwest 6months (doesn't have to have post debt) OR
- Existing salary transaction account CBA/Bankwest 3months w/ Post Debt

 

Another question somewhat related to bridging finance.

Assume you are applying for a loan (pre-approval) for a PPOR. At the point you are applying, the bank will ordinarily assess your application based on your proposed and existing debts.

My question is this. What happens if one of your existing debts is about to be repaid. Eg you own an existing IP (assume value = $1.5m with $750k of debt). The IP has just been sold but will not settle for 2 months.

When assessing the pre-approval for the proposed PPOR, will the existing debts include or not include the $750k. Obviously, if it is included, servicing on the new PPOR will be less.

You could wait the 2 months for the IP to settle, and then re-apply. But that means 2 months of property hunting with a lower pre-approved amount.

 

Unless the loan has been repaid they will assess it as still a debt. They might give a conditional approval subject to the loan being repaid and want proof before settlement of the new loan happens.

 

Terry, thanks. I saw the arrangement I described in my example as not greatly different to the bridging loan examples discussed earlier in this thread. That is, some banks in a bridging scenario will assess you based on end debt. The only difference in my example is that the property has already been sold at the point of application AND you are not asking the bank to lend a higher amount ahead of settlement (as it is not intended that the PPOR transaction settles until after the IP settlement has occurred).

I think what you say is right, but it strikes me as a bit of a anomaly v how a customer seeking bridging finance is treated, where many banks will assess servicing based on end debt.

 

In this specific example the financial profile after the IP sale is used because you can clearly show that the property has been sold, what the debt is and thus what the net position will be after the sale. They'll confirm that the sale went through, but this happens fairly frequently. It's not a big deal at all.

Other assets and liabilities can be a lot more vague. A lot of clients will cancel a credit card or two, but lenders want a 'closer letter' to prove it. People have some extra funds from a tax return coming for a deposit but proving this can be tricky (fortunately most lenders will give you the benefit of the doubt on this one). It really comes down to the situation.

 

Oh yes, if talking bridging loan they may assume it sold