Buyouts, renegotiation, bridging loans
Bridge loan: how it works, its 3 forms and what to do if the property does not sell
Buying before selling: dry bridge, secured bridge or buy-to-sell, what the bank actually advances, and the outcomes if your property takes time to sell.
The bridge loan allows you to buy before you have sold: the bank advances a portion of the value of the property put on the market, namely its own valuation, less the outstanding capital, less a discount. It is not amortised: the capital is repaid in a lump sum upon sale, and interest accrues on the entire amount advanced. If the sale is delayed, extending the bridge or converting it into an amortising loan requires the bank's agreement.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- The bridge loan is not amortised: capital repaid in a lump sum upon sale, interest due on the total amount advanced.
- Three forms: the dry bridge, the bridge secured by an amortising loan, and the buy-to-sell loan which refinances the previous credit.
- The bank never advances the full value: its own valuation, less the outstanding capital, less a discount.
- Property not sold in time, three outcomes: extension by addendum, conversion into an amortising loan or price revision. None is a right.
- The duration is based on the sale period of a comparable property, plus the settlement period, never on the maximum duration offered.
A bridge loan enables you to purchase before you have sold: the lender advances a portion of the value of your property, which is repaid in a single instalment upon the sale. Select the appropriate structure and negotiate the exit strategy before signing, with buy-to-let operations as a fallback if the schedule slips.
Bridge loan: how it works for purchasing before selling
The lender advances a portion of the value of the property being sold. There is no amortisation: the capital is repaid in a single instalment upon the sale, within a short timeframe.
Interest accrues on the entire capital until the end. The lender never advances the full value: this margin also protects you.
Three types of bridge loan: choosing the one that suits your project
A pure bridge loan finances the purchase alone. A combined bridge loan is added to a standard loan. A buy-to-sell loan refinances the existing credit and consolidates everything.
- The pure bridge loan: the property being sold is sufficient. However, a drop in price is not absorbed by anything.
- The combined bridge loan, the most common: the bridge loan covers the expected contribution, and an amortising loan covers the rest. The agreement depends on the cumulative instalments.
- The buy-to-sell loan: a single instalment, but heavier, rarer, and you must always sell.
| Pure bridge loan | Combined bridge loan | Buy-to-sell loan | |
|---|---|---|---|
| Typical situation | The new property costs less or the same as the old one | The new property costs more | A loan is still outstanding on the property being sold |
| Number of credit lines | One | Two | One, after consolidation |
| Costs during the waiting period | Bridge loan interest | Bridge loan interest and amortising loan instalment | Single instalment of the structure |
| Impact of a sale below expected price | Absorbed by your own funds | Can be absorbed by the amortising loan | Adjustment of the structure |
| Availability | General | General | Reserved for certain institutions |
| Main point of vigilance | No flexibility in case of price revision | Cumulative instalments | Complexity and setup costs |
What proportion of your property's value will the bank advance as a bridge loan?
Never the full amount: its own valuation, minus the outstanding capital, minus a discount. The price of the property listing is not taken into account.
The threshold that changes the bank's analysis
Below a certain level, relative to the net value of the property being sold, the bridge loan is excluded from the debt-to-income ratio.
Rapport entre le montant du crédit relais et la valeur du bien mis en vente, nette le cas échéant du capital restant dû sur le prêt en cours.
- En vigueur depuis le
- Source
- Décision D-HCSF-2023-6, art. 1er, 2. — Légifrance
Above that level, it is included in the calculation and immediately reduces your borrowing capacity.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
Requesting the maximum advance often results in the rejection of a structure that would otherwise have been approved.
Three levers for an advance at the right level
- A realistic sale price, supported by recent sales.
- A signed sales mandate, with viewings already underway.
- A signed preliminary sale agreement on your property: the best case.
How much does a bridge loan really cost?
Interest on the entire capital, insurance, administrative fees and guarantee. The interest rate does not decrease: the duration determines the cost.
Plafond du taux effectif global au-delà duquel un prêt relais ne peut pas être consenti. Révisé périodiquement.
- En vigueur depuis le
- Source
- Légifrance
Full or partial waiver: a cash flow choice
- Partial: the interest each month, the capital on sale. The least expensive option.
- Full: nothing during the bridge, everything on sale, interest sometimes capitalised. A delay increases the bill.
Request both figures calculated over the same duration.
Insurance and guarantee: two items to calculate
The insurance remains at its initial level until the sale: on two lines, do not insure the same risk twice. The guarantee on the property sold must be released: agree the cost and the deadline with the solicitor. What each guarantee really costs.
Bridge loan: what happens if the property does not sell in time?
Extension, conversion into a repayment loan, price reduction. None is a right: prepare them before signing.
The extension is made by addendum, based on documents: preliminary sale agreement, offers, viewings. The price reduction is often the least expensive: each month of waiting is paid for. The conversion into a repayment loan leaves you with two loans, within the limit of the maximum duration:
La transformation produit un crédit nouveau : il est soumis à cette maturité comme n'importe quel autre, et la durée déjà écoulée sous le relais ne s'y ajoute pas.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
Four points to negotiate from the loan offer
- The extension: duration, documents, cost.
- No early repayment penalty on the bridge loan, and on partial repayments.
- The conversion into a repayment loan, and its rate.
- The sale condition precedent on the purchase, if the seller accepts it: the three clocks of a file's end.
Fraction du montant initial du prêt. C'est une faculté que le contrat peut prévoir, pas une règle qui s'applique d'office : elle se lit dans vos conditions générales.
- En vigueur depuis le
- Source
- Article L. 313-47 du code de la consommation — Légifrance
What term should you request for a bridge loan?
The observed sale period for a comparable property, plus the time until the receipt of the sale proceeds.
The method: the term of a bridge loan in the Lyon west area.
Sell first: the alternative to calculate honestly
No additional risk or waiting interest. However, you must arrange accommodation in the interim.
Compare the cost of the bridge loan with a few months' rent, a double move, and a storage unit. If the property is atypical or the budget is tight: sell first. If the property is standard and well-valued: the bridge loan prevents you from selling at a loss.
Three checks before signing a bridge loan
- Is the current rate favourable? Transferring your loan to another property.
- Will the current loan be settled? Its exit fees, plus the release of the mortgage.
- Are there instalments to be reduced during the sale period? Adjust or pause.
Calculate the total, including purchase costs. Are you planning a buy-to-sell? Create your file or have your schedule checked by telephone.
Sources
Read next
- Mortgage rates in Lyon: current rates by loan term
- Bridge loan in the western Lyon area: calculating the right term to request No sale period is published by municipality: the method to estimate yours in the western Lyon area, and to deduce a sustainable bridge loan term.
- Long sale: how to finance a purchase when the deed is signed months after the preliminary sale agreement Long sale: when to submit the mortgage application, how to keep a loan offer valid until the deed, and how the seller can do without a bridge loan.
- Transferring your mortgage to another property and keeping your rate Keeping your rate when moving: where to find the transferability clause in your loan offer, its conditions, and the solutions when it is missing.
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