How this lending option works
Bridging finance is short-term funding used when a new property settles before sale proceeds from the existing property are available. The key question is not simply whether the purchase can be funded, but whether the sale and resulting end debt remain manageable under a conservative scenario.
- Buy before selling your current property
- Model peak debt and the expected end debt
- Stress-test timing, interest and sale-price risk
Peak debt, sale proceeds and end debt
Peak debt is the amount owed while both properties are held. When the existing property sells, the net sale proceeds reduce that balance, leaving the end debt. We model the expected position after allowing for the current loan, purchase costs, selling costs, interest and a prudent sale value.
What lenders assess
Bridging policies differ materially. Lenders can take different approaches to serviceability, capitalised interest, acceptable security, maximum term and the evidence required for the proposed sale.
- Expected sale value and a workable sale timeframe
- Maximum loan-to-value ratio during and after the bridge
- Capacity to manage repayments or capitalised interest
- A credible exit if the property takes longer to sell
Risks to plan for before buying
The main risks are a lower sale price, a delayed sale and higher interest or holding costs. We stress-test those variables and compare bridging with alternatives such as selling first, negotiating settlement timing or using other available equity.
Common questions
How long does a bridging loan last?
Terms vary by lender and product. Many residential bridging facilities are designed for a short period, commonly up to around 12 months, but the actual term and conditions must be confirmed for the selected lender.
Do I make repayments during the bridging period?
That depends on the lender. Some require interest payments, while some products may allow interest to be capitalised subject to policy and sufficient equity. Capitalised interest increases the amount owed.
What if my existing home sells for less than expected?
Your end debt may be higher than planned and could affect affordability or the lender's requirements. This is why we use a conservative sale estimate and test a downside scenario before proceeding.
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