Bridging Loans Explained: Buying Before You Sell

The short answer

A bridging loan lets you buy your next home before you’ve sold your current one. It covers the gap until your sale settles, then the sale proceeds pay it down.

It can take the pressure off timing your move. But it’s not workable for everyone, and the costs and equity requirements need careful planning.

How bridging works

• Peak debt: your current loan plus the full cost of the new home. This is the most you’ll owe while you hold both properties.
• End debt: what’s left once your current home sells and the proceeds pay down the loan. Lenders mostly assess whether you can afford this ongoing loan.
• The bridging period: the time you have to sell, usually 6 to 12 months.
• Capitalised interest: interest on the bridging portion is often added to the loan during this period, rather than paid monthly, then cleared from your sale proceeds.

Worked example

Sarah owns a home worth $1,200,000 with a $300,000 loan. She wants to buy a $1,500,000 home, plus about $60,000 in costs, before selling.

	Amount
Current loan	$300,000
New home plus costs	$1,560,000
Peak debt	$1,860,000
Combined value of both homes	$2,700,000
Peak LVR	about 69%
Net sale proceeds, after selling costs	about $1,170,000
End debt (plus interest added during the bridging period)	about $690,000

Sarah’s peak LVR sits under 80%, and her end debt is a comfortable size for her income. That’s what makes bridging workable for her.

Bridging isn’t workable for everyone

• Higher rates: bridging loans usually carry a higher interest rate than a standard home loan.
• Interest on the peak debt: while you hold both properties, you’re paying interest on the full combined amount, which adds up quickly.
• Strict LVR limits: most lenders cap bridging at around 80% across both properties combined.

That means bridging generally only works if you have plenty of equity built up in your current home, and cash available for costs and buffers. If your equity is limited, one of the alternatives below may suit you better.

Alternatives to bridging

• Use a long settlement: one of the best ways to avoid bridging. Whichever you do first, buying or selling, negotiate a long settlement of three to six months on it. That gives you time to complete the other part before it settles.
• Sell first: sell your current home, then buy, renting in between if needed.
• A deposit bond: secures your new purchase without needing cash for the deposit until settlement.
• Equity release: borrow against your current home for the deposit, then sell and settle as normal.

Buying and selling at the same time?

With access to over 40 lenders, our team of lending specialists can work out whether bridging suits you, model your peak and end debt, and compare it with the alternatives.

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Examples are illustrative. Lender requirements vary. Seek advice from a licensed credit adviser before acting. Insight Property Finance.