Bridge over troubled water between sale and transfer
THE PERIOD between the sale and transfer of a home can be financially constricting, often leaving sellers with no accessible capital for expenses such as a deposit on a new home, settling municipal arrears or even living expenses.
“This can be further exacerbated by delays at the deeds office, especially when sellers have over-extended themselves on their new homes and don’t have cash for the deposit and the transfer fees,” says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
“Bridging finance can be the ideal solution as it is a short-term loan created specifically for real estate as the current home serves as collateral to secure the loan amount.”
Andrew Church, CEO of Rodel Financial Services, a bridging finance company, and chairman of the Bridging Finance Association of South Africa, says bridging finance is only advanced to sellers once they have sold their properties and the conditions of the sale have been met, with the loan period averaging 45 days.
“It is a completely separate transaction to the bond application and subject to different criteria, the most important being that the seller’s credit rating is less important than the fact that the seller has equity in their property, with the sale price less transaction costs being greater than the mortgage bond.
“We advance up to 85% of the equity in the property with the industry interest rates calculated at around 4% per month, which translates to R4 000 per R100 000,” says Church.
The loan is then repaid by the conveyancing attorney upon registration and transfer of the net proceeds due from the sale price, leaving the seller free to get on with moving.
Although bridging finance is a financial loan, it is tailored to a specific market and industry only and is therefore not processed by banks or bond originators.
The bridging finance product is very different from micro lending and also less regulated by law. Church says it is therefore essential to only use companies registered with the Bridging Finance Association of South Africa.
“To ensure and protect the integrity of the industry, the main players formulated a self-regulatory body which will stand until the promulgation of the new Property Practitioners Bill which seeks to encompass the many different participants in the property industry.”
He cautions cash-strapped sellers against borrowing from attorneys who lend money to their clients.
“Attorneys cannot be money lenders in a transaction and also purport to act in the best interests of the buyer and seller. There is always a conflict of interest in this situation and unfortunately we have numerous examples to prove it,” he says.
Geffen concludes: “Bridging finance can be costly so don’t apply for more money than you need and take the loan for the shortest period possible while capital is being freed up.”