The bridging loan consists of a short-term mortgage which allows the purchase of another home while waiting to complete the sale of its current property. This solution can however lead the borrower to a difficult situation if the sale of his property is slow to happen. In March 2009, the government asked the banks to make a commitment to support people having difficulties with their bridging loan.
Reminder for the record: The conditions of the bridge loan
The bridge loan is a short-term mortgage, generally between 1 and 2 years, guaranteed by the value of the property for sale. It can take two forms: Either a dry bridge loan, or a loan associated with a long-term mortgage. The first type concerns a cash advance made for the purchase amount of a property that is 60 to 80% lower than the resale value. There is therefore no additional long or medium term loan. The interest and the capital of the dry bridge loan can be repaid in full, once the sale of the property has been made.
In the second case, the bridging loan completes a greater financing need and an additional loan is set up. Like the dry bridge loan, interest and principal can be repaid after the sale is made, interest may be paid monthly. If the bank accepts a deferral of payment on resale, it will not be able to collect interest on those not collected, the cost will then be identical to the choice of a monthly payment. In addition, the bridging loan only covering on average 60% to 80% of the envisaged sum, it allows the borrower to provide in its financing plan for the repayment of the remaining 40% or 20% once the resale has been made.
Government action to help borrowers
In March 2009, the government asked the banks to commit themselves to assist homeowners facing resale difficulties. At the request of the State, the lending institutions are therefore committed on several points. First, the banks take care not to apply any penalty in the event of an extended bridge loan term or deferred repayment deadlines. The banks have also decided to appoint a “credit-bridging contact” person for each banking network, in order to monitor the situations in detail.