Bridging Loans Explained: How to Buy Before You Sell

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You found your dream next home but haven’t sold your current one yet. A bridging loan covers the gap. Useful tool — and a financial trap if used wrong.

What a Bridging Loan Does

A short-term loan that lets you buy a new property while your existing one is on the market. The “peak debt” period (when you own both) is funded by the bridging arrangement.

When your current home sells, the proceeds repay the bridging portion. The remaining loan rolls into a standard mortgage on the new property.

Two Common Types

Open bridging: Property not yet sold. Higher rate, riskier.

Closed bridging: Property has unconditional contract, just awaiting settlement. Lower rate, safer.

Both typically charge 0.5–1% premium over standard variable rates.

How It Works Step-by-Step

Application: Lender assesses your peak debt and serviceability
Settlement of new property: You own both. Interest accrues on full bridging loan.
Existing property sells: Proceeds go directly to the bridging portion
Standard mortgage: What’s left becomes your normal home loan

The Risk: When Your Current Home Doesn’t Sell

If your existing property doesn’t sell within the bridging window (typically 6–12 months):

Interest keeps accruing at the bridging rate
You may face forced sale at reduced price to meet bank deadline
Personal stress + financial loss compound

This is the single biggest risk. Plan conservatively.

When Bridging Makes Sense

Your current property is very saleable (good condition, good market, good price)
You have strong serviceability for the peak debt period
You’re moving for irreplaceable reasons (job, family, dream property)
Your accountant has confirmed no tax/structuring issues

When to Avoid

Slow market with high days-on-market for similar properties
You’re stretched financially before bridging
You don’t have a backup if the property doesn’t sell
Auction-bidding emotionally rather than from negotiated position

Alternative Strategies

1. Sell first, then rent short-term Lose 3–6 months of mortgage on your current home, but enter the next purchase with cash + certainty.

2. Subject-to-sale offers Make your purchase contract conditional on selling your existing home. Reduces auction wins but eliminates bridging risk.

3. Family loan for the gap If parents or siblings can extend a short-term loan, it may be cheaper than bridging.

4. Vendor finance (rare) The seller of the new property agrees to delay settlement until your old place sells.

What Lenders Look For

Peak debt serviceability stress-tested at 3% above current rates
Sound estimated sale price on existing property (often valuation required)
Reasonable timeline (3–6 months to sell)
Clean credit and recent income

The Numbers Example

Current home: Sells for $700k expected Current loan: $200k New home: $900k New deposit: $100k

Peak debt during bridging:

New loan: $800k
Old loan: $200k
Total: $1,000,000

Interest at 7% bridging rate = $5,800/month while overlapping.

If overlap is 4 months, that’s $23,200 in interest alone. Build that into your budget.

⚠️ Reality Check: Bridging works beautifully when your old home sells quickly. It destroys budgets when it doesn’t. Plan for both outcomes.