Home Loan Talk – Bridging Finance

Private Property South Africa
Denise Simpson

In today's market, a substantial amount of home loan applications are applied for

with costs. In other words, the bank is required to lend the selling price plus

transfer fees, legal and bank costs.

To enable the transfer to go through quickly, the bank may release the legal

fees to the conveyancing attorney prior to registration of the home loan. If the

bank elects not to advance the legal and bank costs, this has to be funded by

the purchaser. If he does not have this cash available, he has the option of

applying for bridging finance. Bridging finance is a short term loan used to

gain access to necessary funds, against future income.

In many circumstances, a home loan and transfer is dependent on the proceeds

coming from the sale of an existing property. The transfer of the second

property will only take place once the bond of the existing property has been

cancelled. This could hold up transfer of the new purchase, and could cause a

chain reaction of delays.

To avoid the above delays, there are bridging finance companies that will pay up

to 80% of the proceeds expected from the sale of existing property prior to

registration and transfer. The seller, who is in urgent need of cash, can have

immediate access to the funds.

This may sound complex from a legal perspective, but it is a relatively

straightforward procedure with which all conveyancing attorneys are familiar.

Bridging finance can also be obtained if a home is being renovated, and a

further loan on an existing bond has to be registered. The delay in this sort of

transaction can be up to 2 months, and by using bridging finance, you can save

time and money.

Obviously, the bridging finance company will require remuneration for their

services and the fee can be quite hefty, depending on the amount of the loan and

the period for which it is granted. Because of its short term nature, bridging

finance is usually granted for a period of between one and three months.

Interest charges in the first month usually range between 3 and 5 percent of the

total amount of the loan; however, this figure does tend to increase to a higher

percentage if the finance is required for a longer period.

The cost of the bridging finance should be carefully weighed against the relief

from the immediate financial situation and the time saved. Remember, the quicker

the transfer, the less occupational interest paid by the buyer.

Should you wish to apply for bridging finance, and are concerned that you may be

overcharged, it would be best to ensure that the company you use is a member of

the Bridging Finance Association of South Africa (BFASA). Formed in 2007, the

organisation states that their aim is to ensure the long-term sustainability of

the bridging finance industry. This will be achieved by participating in

Financial Industry discussions and forums, and creating an environment within

which members can share valuable information, as well as promoting ethical and

socially responsible conduct by their members.

For a list of current members, or to contact the BFASA, logon to

www.bfasa.org.za.

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