You have found the house or apartment of your dreams, but your current property has not yet been sold: a bridging loan can then allow you to finance this purchase while waiting for the sale to be completed. This short-term loan, backed by the estimated value of the property you intend to sell, appeals to many homeowners in France who want to link a purchase and a sale without missing an opportunity. However, it is essential to understand exactly how it works, how much it costs and what risks it involves before committing.
In summary
• A bridging loan is a cash advance granted by a bank, generally representing 50% to 80% of the estimated value of the property to be sold, in order to finance the purchase of a new home.
• Several formulas exist: the standalone bridging loan, the bridging loan with partial deferment, where only interest is paid, and the bridging loan with full deferment, where both capital and interest are deferred.
• Its usual term is 12 to 24 months, with a cost made up mainly of interim interest, calculated on the amount released.
• The main risk is that the property for sale may not find a buyer within the expected timeframe, forcing the owner to accept a price discount or carry two monthly payments; a reliable valuation upfront is essential to secure the transaction.
What is a bridging loan and how does it work in French real estate?
Definition of a bridging loan in real estate
A bridging loan is a short-term mortgage loan that allows a homeowner to buy a new property before selling their current home. In practical terms, the bank advances part of the estimated value of the property put up for sale, which avoids having to wait until the sale is finalised to obtain the funds needed for the new purchase. This mechanism is particularly useful in a market where attractive properties sell quickly and where it is not always possible to perfectly synchronise the two transactions.
The principle of an advance on the value of the property
The amount of the bridging loan is calculated based on the net value of the property to be sold, meaning its estimated value minus the outstanding capital on any existing mortgage. The bank never advances 100% of this value, in order to protect itself against a price decrease during negotiations or a longer-than-expected sale period. This advance is then repaid in a single payment when the property is effectively sold, using the sale proceeds paid to the bank.
The different types of bridging loan in France
The standalone bridging loan
A standalone bridging loan applies when the purchase amount is fully, or almost fully, covered by the advance on the property to be sold, without the need for an additional loan. It is suited to borrowers who are buying a property of similar or lower value than their current home.
The bridging loan backed by a standard mortgage
When the new property costs more than the property to be sold, the bridging loan is combined with a standard mortgage that finances the difference. This is known as a backed bridging loan: the two loans run in parallel until the sale, after which the proceeds from the sale repay the bridging loan, leaving the borrower with only the standard mortgage to repay over the remaining term.
Full deferment or partial deferment
Two repayment methods coexist. With partial deferment, the borrower pays the interest on the bridging loan each month, while the capital is repaid in full at the end, when the sale takes place. With full deferment, neither the interest nor the capital is paid during the bridging period: they are capitalised and settled in one payment upon resale, which eases monthly cash flow but increases the final cost of the transaction.
Cost and duration of a bridging loan in France
The amount financed by banks
In practice, banks generally finance between 50% and 80% of the estimated value of the property to be sold, with the most common range being closer to 60% to 70%. This coverage rate depends on the quality of the application, the local market and, above all, the reliability of the valuation provided. This is why it is strongly recommended to rely on a free property valuation carried out by a professional before approaching the bank, in order to obtain a realistic and substantiated figure.
The rate and interim interest
A bridging loan is generally offered at a rate slightly higher than that of a standard mortgage, because it represents a higher risk for the bank. The interest due during the bridging period, known as interim interest, is the main cost of the transaction: it is calculated on the amount released and accrues until the capital is repaid, whether monthly in the case of partial deferment or in one payment in the case of full deferment.
A term limited to 12 or 24 months
A bridging loan is granted for an initial term of 12 months, which may be renewed once to reach a maximum of 24 months. After this period, if the property has still not been sold, the borrower must find a solution with the bank: renegotiation, conversion into a standard mortgage or sale at a reduced price. This time limit therefore requires careful planning from the outset.
The main risks of a bridging loan
The property does not sell within the expected timeframe
The main risk remains that the property struggles to find a buyer within the allotted timeframe, because of a slower market, a poorly positioned price or a defect in the property. The closer the deadline gets, the greater the pressure to sell becomes, which can weaken the seller’s negotiating position.
An urgent price discount
As the end of the bridging loan approaches, a homeowner may be forced to accept an offer below the property’s real value in order to complete the sale on time. This discount, sometimes significant, reduces the net proceeds of the sale and may no longer be enough to fully repay the bridging loan, creating a remaining balance to be financed in another way.
Carrying two monthly payments
As long as the initial property has not been sold, the borrower may have to simultaneously cover the interest on the bridging loan, the monthly payments of any backed loan for the new property, and the ongoing costs associated with both homes, such as property tax, co-ownership charges and insurance. If this situation continues, it can weigh heavily on the household budget. Reviewing the situation with a local Capifrance real estate adviser before committing makes it possible to anticipate this scenario and check the consistency of the financing plan.
Alternatives to a bridging loan
Sell before buying
The safest solution remains selling your current property before committing to a new purchase. This approach avoids any risk of a double financial burden, but it may require finding temporary accommodation between the two transactions, or negotiating a right of occupancy period with the buyer. Consulting our property listings in advance can also help you better assess realistic sale timeframes in your area before positioning yourself for a purchase.
Synchronise the two transactions
Another option is to negotiate close signing dates between the sale of the old property and the purchase of the new one, with the help of a professional who coordinates both files in parallel. This synchronisation requires flexibility from the different parties, but it can limit, or even eliminate, the need for bridging finance.
Practical advice to secure your bridging loan in France
The success of a bridging loan depends above all on the reliability of the valuation of the property to be sold: an overestimated value delays the sale and complicates repayment, while an underestimated value unnecessarily reduces the financed amount. It is therefore advisable to compare several valuations, rely on the prices actually observed in the neighbourhood and request a free property valuation before submitting any loan application to the bank. It is also useful to put the property on the market as soon as the bank’s agreement in principle is obtained, in order to maximise the time available, and to allow for some negotiation margin on the price to avoid a last-minute discount. Finally, comparing offers from several banks and being supported by a real estate professional makes it possible to adjust the financing structure to your personal situation and limit unforeseen issues.
Conclusion
A bridging loan is an effective financing tool for not missing out on a purchase opportunity, provided that you fully understand its mechanisms and deadlines. Its cost, limited duration and the risk linked to an uncertain sale require rigorous preparation, particularly a realistic valuation of the property to be sold and professional support throughout the project. When properly anticipated, it allows you to move smoothly from one home to another; when poorly prepared, it can instead become a source of financial stress.
Frequently asked questions
What is the difference between a standalone bridging loan and a backed bridging loan?
A standalone bridging loan finances the purchase of the new property by itself when its value is close to that of the property to be sold. A backed bridging loan, on the other hand, comes with an additional standard mortgage when the new property is more expensive, with the two loans coexisting until the old home is sold.
How long does a bridging loan last?
A bridging loan is granted for an initial term of 12 months, renewable once to reach a maximum of 24 months. Beyond this period, if the property has not been sold, the borrower must reach an arrangement with the bank, such as converting it into a standard mortgage.
What happens if the property does not sell before the bridging loan ends?
If the sale is not completed within the required timeframe, the bank may propose an extension, consolidation of the bridging loan into a standard amortising mortgage, or require a price reduction to speed up the transaction. This is why a realistic valuation from the start is essential to limit this risk.
Is a bridging loan expensive compared with a standard mortgage?
The rate of a bridging loan is generally slightly higher than that of a standard mortgage, because of the additional risk it represents for the bank. Its cost mainly depends on the actual length of the bridging period: the faster the sale takes place, the less interim interest accumulates.
Can you avoid a bridging loan?
Yes, by selling your property before buying the next one, or by synchronising the two transactions as effectively as possible with the help of a real estate professional. These alternatives reduce the financial risk but require greater flexibility on the timeline and sometimes a temporary accommodation solution.
How should you value your property before applying for a bridging loan?
It is recommended to compare several valuations and rely on prices actually observed in the area, rather than on an optimistic estimate. Having a valuation carried out by a local professional provides a reliable figure, which is an essential condition for securing the amount of the bridging loan and the sale strategy.
Author:
Frédéric Rémy – Director of Sales Performance
A real estate professional with several years of experience within the Capifrance network, I would like to share essential advice with you to help you successfully complete your property project with our advisors.
