Bridging finance for property purchases: online bridging in 3 steps
15.05.2025
11
Minutes
Katrin Straub
Managing Director at nextsure
You have found your dream property, but your old home has not yet sold? Interim financing bridges this financial gap for up to 24 months. Find out how you can easily manage this process online and secure key advantages.
The topic in brief and concise terms
Bridge financing is a short-term loan (max. 24 months) that serves as equity for the main financing.
The interest rates are one to five percentage points higher than for a property mortgage, but repayment is possible at the end without an early repayment penalty.
The biggest risk is a delay in selling the old property; a realistic price and a time buffer are therefore crucial.
The foundation: What bridge financing provides
Bridge financing is a short-term loan that closes a temporary funding gap. It becomes relevant when you need capital for a property purchase, but it will only be available in the near future – typically in six to 24 months' time. A classic example is buying a new house for 500,000 euros while the proceeds from the sale of your old property, worth 400,000 euros, are still pending. The bank advances you these 400,000 euros. This capital is counted as equity in the actual property financing, which often leads to better interest rates. Bridge financing is repaid as soon as your tied-up capital, such as the sale proceeds, becomes available. This mechanism gives you the flexibility you need to act quickly in the property market. Next, we look at the specific costs associated with this flexibility.
The costs in detail: analysing interest rates and terms
The costs of bridging finance are higher than those of long-term property finance. Banks calculate a risk premium, as the sale proceeds from the old property could be lower than expected. This interest surcharge amounts to between one and five per cent, depending on creditworthiness and market conditions. During the term, you usually only pay the interest; repayment is made in a single sum at the end. One decisive advantage is that no early repayment penalty is charged for this final repayment if you repay the amount earlier than planned. A careful household budget calculation helps to assess the monthly interest burden realistically. The exact requirements for approval are the next logical step.
The path to a loan: requirements and process
Banks grant bridging finance only under certain conditions. The most important requirement is proof that the capital needed for repayment will be safely available. A notarial draft purchase agreement for your old property is the best evidence for this. In addition, the bank checks your general creditworthiness, usually via a Schufa report. The amount of the bridging finance is limited to the value of the expected inflow of funds. The process can be divided into three clear steps:
Prepare documents: Gather all documents such as the purchase agreement for the new property, proof of sale of the old property and creditworthiness documents.
Compare offers: Obtain offers from several banks, ideally also from the bank that provides your affordable property finance.
Check and conclude the contract: After approval, the loan agreement is drawn up and the sum is paid out.
However, even with a smooth process, there are risks that you should know and manage.
Risk management: Potential hurdles and how to overcome them
The biggest risk of bridge financing is a delay in selling the old property. If the sale fails to go through within the agreed term of up to 24 months, a funding shortfall may arise, as the bridging loan becomes due. If you achieve a lower sale price than planned, a shortfall will occur that you need to cover with other funds. Another risk arises with loans that have a variable interest rate, as interest rates can rise during the term.
Our expert tip: Set the asking price of your old property realistically, ideally on the basis of a professional property valuation. Plan in a time buffer of at least six months for the sale so that you do not come under pressure. Arranging follow-on financing in good time can also provide security. These safeguards lead us to the legal framework you need to observe.
The legal framework: What must be included in the contract
Legally speaking, bridge financing is a loan agreement under Section 488 of the German Civil Code (BGB). It should clearly regulate all essential points in order to avoid misunderstandings. Pay attention to the exact term, the interest rate and the conditions for repayment at maturity. It is crucial that the right to early repayment without additional costs (prepayment penalty) is expressly stipulated. As security, the bank often requires a land charge to be registered on the property to be sold. The following points should be clearly defined in the contract:
The exact loan amount
The fixed or variable interest rate
The maximum term (e.g. 24 months)
The precise definition of the repayment event (e.g. receipt of the purchase price)
The securities (e.g. registration of a land charge)
If the conditions are clear, the question arises as to whether there are any sensible alternatives.
Consider alternatives: When other approaches make more sense
Although bridging finance is often the best solution, alternatives do exist. One option is a variable loan, which, unlike bridging finance, does not have a fixed term and can usually be terminated quarterly. This offers more flexibility if the timing of the sale of your property is completely uncertain, but is often associated with even higher interest rates. Another option is to wait for the sale of the old property before buying a new one. This eliminates the financing risk, but may mean you miss out on your dream property. A bridging loan until sale is a special form tailored precisely to this case. The decision depends on your risk appetite and the urgency of the property purchase.
Bridging finance when purchasing property is an effective tool for acting quickly and flexibly. However, it requires careful planning and a realistic assessment of your own financial situation. A professional analysis of your individual circumstances is the first step towards secure financing. Have your insurance situation checked free of charge and receive specific recommendations for optimisation.
More useful links
Gabler Wirtschaftslexikon offers a detailed definition of interim financing.
The Digital Dictionary of the German Language (DWDS) provides a linguistics-based definition of interim financing.
The Sparkasse provides a comprehensive guide to interim financing when purchasing property.
The VR Banken provide information on interim financing as part of property financing.
Wikipedia offers a comprehensive overview of the topic of interim financing.
Wikipedia explains the related term bridge financing.
Wikipedia provides insights into the concept of pre-financing.
FAQ
What is the difference between bridge financing and pre-financing?
In the case of interim financing, the follow-on financing (e.g. through the sale proceeds) is already in place. In the case of pre-financing, the later repayment is not yet secured, which means a higher risk for the bank and, as a rule, higher interest rates for you.
What is the maximum term of bridge financing?
The term of interim financing is generally limited to a maximum of 24 months. Within this period, the loan must be repaid in full.
Is bridge financing recognised as equity?
Yes, banks classify the capital from bridge financing as equity for long-term construction financing. This can improve the loan-to-value ratio and lead to more favourable interest rates for the main loan.
Who is bridge financing suitable for?
It is worthwhile for property owners who buy a new property before the old one has been sold, or for people who are waiting for the payout of a life insurance policy or a building savings contract to finance their purchase.
Do I have to pay instalments during the term?
No, bridge financing is typically an end-of-term loan. This means you only pay the interest during the term. The full loan amount is repaid at the end in a single payment.
Do all banks offer bridge financing?
No, not all banks offer bridging finance, as the administrative effort for the short term is relatively high. It is often only offered in combination with the main financing at the same bank.
