Monday, August 3, 2009

Bank bridging loans

When selling a French property and buying another, it is possible to obtain a short term bridging loan - known as a 'prèt relais' - secured on the property you are selling, in order to help finance the purchase of the one you wish to buy. Bridging loans are available from all the French high street banks, and are normally based on up to 70% of the value of the property you are selling. They are normally for a duration of 24 months when they must be repaid in full.

I personally advise clients not to consider taking out a bridging loan on a property that is not yet sold, even if they are convinced they have found the 'house of their dreams' at a price they can afford. During the recent slowdown of the property market, some 30,000 vendor/buyers in France have found themselves caught in this trap, having agreed to buy a second property while their existing home remained on the market un-sold, beyond the two-year loan period.

They were thus faced with the prospect of paying two mortgages, and in some instances obliged to sell one or both properties in order to get out of the financial difficulties they faced. In some cases these included job loss. Under pressure from the banks, many were forced to sell at a loss, leaving less money available to pay the bridging loan and finance the new property.

The French government has asked the banks to be lenient with customers caught in this situation but it is difficult to assess how well their request has been received. In some cases, banks will extend the loan period beyond the normal two years, but this still leaves the customer with the problem of facing two sets of loan repayments.

Even in France's highly controlled property market and extensive protections for both buyers and seller, a property transaction can fail at the eleventh hour for numerous reasons. In my experience, it is never wise to embark on a second property purchase until your first property is sold, and the money safely in your bank. As a cash buyer, you are then in an ideal position to take your time and negotiate the price of your next property purchase.