Bridging Finance - How the banks view it..
About Bridging Finance
I had a good friend (and client) ask me about bridging recently - the point she was making was that lots of people (certainly of similar age to her (late 40s) were in a position whereby they wanted to upgrade their home but wanted approval to buy the upgrade/new one before they sell the current one and hence, were more likely to require “open bridging” approval.
As always there are many points of financial advice that need to be factored into each & every lending application. This applies to not only bridging finance but any request for finance.
Bearing in mind that a bank will nearly always look at the “worst-case scenario” (it’s their role to ensure risk is managed), let’s look at this type of request from a bank’s point of view.
The main points to any sort of application that the bank look at are:
How well secured are we as a bank/business in this particular application?
Would we as a bank/business be at an overall loss because we don’t hold enough security?
Does this particular scenario provide a lot of security or bottom line if for some unforeseen reason these clients couldn’t repay their loan back?
If as a bank/business we lend this specific amount of money to this client how much money at the end of each month do they have to live a comfortable life?
Essentially, the bank do not want to put you into a position whereby your day to day living expenses/obligations make life stressful. If things get tight, the common result is that people go and get more expensive short term debt. Nothing about this scenario is a positive outcome for anyone involved hence, they work hard on ensuring they don’t allow you to get yourself in that predicament.
However, if the bank is able to confirm that both security & income (and surplus income) is acceptable then the loan will likely be approved. If not, the application would be declined or more information would be requested.
Another question, I often get asked is “why did my friend’s application get approved & mine didn’t as our scenarios are very similar”?
Often the reason for this is that every one of us has a different history when it comes to lending. We may have applied for different types of finance at different times in our lives. We all have a different credit score due to the way in which we have conducted our bank accounts (good or bad) in a past life. We may have unresolved issues with an old credit provider that needs sorting out. We all have different characteristics and individual circumstances/profiles - often information that our friends may not be aware of but which are material in terms of making a difference when it comes to lending applications.
You may have an income that is considered well above average but how wise are you with that income? Are you a disciplined saver or do you live for the mantra “here for a good time not a long time”?
All of these factors come into play when applying for any type of finance and different lenders will take different views/risk positions which is where as a mortgage advisor can often help by guiding borrowers through a process. We regularly help and guide our customers on how to approach the next purchase and make a plan to achieve their dreams. Whether that’s bridging for the new family home or investing in property for future wealth creation - we know how to do it.
If you have questions or need to discuss Bridging or any other lending scenario, Give me a call on 021 616707 or email me at erin@khproperty.co.nz
