The demand for bridging finance in Portugal has been rising as property buyers seek short-term solutions to manage their property transactions. Bridging finance is especially useful when a buyer wants to purchase a new property before selling their current one. This type of finance involves securing a mortgage on both properties—one for the new purchase and another for the existing property.
Case study: Effective use of bridging finance
Let’s delve into a real-life example to illustrate how bridging finance works:
A client aims to buy a new property valued at €500,000 and needs a mortgage of €440,000. They still own a property valued at €200,000 with an outstanding mortgage of €50,000. Initially, the Loan-to-Value (LTV) ratio is 88%, which will drop to 68% once the existing property is sold.
Here’s the breakdown of their financing needs:
- Total borrowing required: €490,000 (€440,000 for the new property + €50,000 to settle the existing mortgage).
- Amount covered by sale: €150,000 from the sale of the existing property.
- Amount to be financed long-term: €340,000.
- Bridging finance needed: €150,000 to cover the gap until the existing property is sold.
Mortgage deals
- Long-term mortgage:
- Amount: €340,000
- Terms: 10 years fixed at 1.9% interest rate, followed by 20 years variable at 6-month Euribor + 1.09%
- Monthly Repayment: €1,240
- Short-term bridging loan:
- Amount: €150,000
- Terms: 30 years at a fixed rate of 1.75%
- Monthly Repayment: Interest only + 10% of capital repayment: €249.38
Key points to remember
- While the existing property is unsold, the client will make monthly repayments of €1,240 for the long-term mortgage and €249.38 for the short-term bridging loan.
- Upon the sale of the existing property, the short-term loan will be repaid, and the client will continue to pay €1,240 until the end of the 10-year fixed rate period.
- Buyers should account for mortgage fees and ensure both properties are insured during ownership.
This case study demonstrates how bridging finance can provide the necessary funds to secure a new property while awaiting the sale of an existing one. If you’re considering bridging finance in Portugal, understanding these details can help streamline your property transactions.
For more information on how bridging finance can work for you, feel free to get in touch.
Complete my private wealth assessment form