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Bridge Loans are gaining traction and creating new opportunities for brokers amid a tight housing market.
While the ideal set-up would be for a buyer to sell their home before entering into a new one, this is not always possible on properties with multiple offers or that stay on the market for only a few weeks, or even days. Bridge financing offers a solution during these tricky transitions. These specialized short-term loans provide added, oftentimes necessary, funds to homeowners between homes when they want to jump on their next property before their existing residence has been sold. Conversely, if a property sells quickly, a bridge loan can prevent the homeowner from having to rent or pay for storage while they look for their next home.
"There's a market and need for this," Chris Meaker (pictured above left), director, head of sales and distribution at non-bank lender Brighten, told Australian Broker. "People can buy a property they found and take a loan out on that new property and also have the current property while it sells."
The loans are available to everyone, but are especially prevalent among retirees looking to move to smaller, more affordable homes, said Brenden Lowbridge, a Newcastle-based broker at Money Links.
"If someone is downsizing and found their next dream home for $1 million, but they have to wait until they sell their current $2 million home, a bridge loan might help," he said. "And more Baby Boomers are getting to retirement age and they're thinking about downsizing."
But it's not just retirees who are adding to the momentum. First-time home buyers and upgraders competing for homes might consider a bridge loan. Meaker added that work-from-home set-ups and hybrid working conditions are also contributing to growth.
"Lifestyles are changing, so we're seeing a lot of customers who are looking to downsize, or move further afield, out of the city, and enjoy beach life," he said.
Rates are often higher for bridge loans, sometimes north of 8%, and typically last anywhere from three to 12 months. Depending on the lender and what the borrower qualifies for, the bridge loan can be as much as 80% of the value of the new property to help the homeowner make the leap.
"It's essentially a transition loan; a one-shot loan," Lowbridge said. "And it's absolutely an opportunity for brokers."
Not all lenders offer bridge loans. But the ones that do have reported increased demand.
"We've probably seen about a 50% increase at Brighten in our bridging inquiries over the last 12 months," Meaker said. "So it's a very good product and it's favourable to a lot of customers and brokers."
Aaron Bassin (pictured above right), cofounder and chief executive officer of Sydney-based fintech non-bank lender Bridgit, said his firm helped finance $1.5 billion in mortgages last year, with a 300% increase in inquiries.
“A 300%, year-over-year growth, is more than just natural growth of a small business,” Bassin said. “It also underpins a lot of the key themes and demands in Australia's market, where the demand for bridging is increasing.”
Timing is everything, especially in a housing market that has a well-documented shortage of available units. Borrowers need to move quickly and have financing in place. Brokers, then, would be well served to know all available options.
Lenders such as Bridgit use AI to help potential borrowers get approved within minutes online. Connective Home Loans, a privately-held Australian aggregator, got in on the action that same month, by launching its own version of bridge loans in partnership with Bridgit. The firm also offers an online application process.
Other lenders that offer bridge loans include Australian Secured Capital Fund, Mango Credit, Yard, Mortgage House, ANZ and Bank of Heritage Isle.
With the growing need for bridge loans, both lenders and brokers benefit. Connective said brokers receive commission on the initial loan amount of the bridge loan sans clawbacks.
Meaker said 99% of Brighten's business comes from brokers.
“The bridging product favors brokers because there's not a lot of lenders that offer bridging finance," he said. "It's giving brokers more solutions to help their customers."
