Bridging loans: buy your next home before you sell
Buy and settle without waiting for your existing home to sell — but only if structured correctly. Here's how it works and what to watch for.
How bridging finance works
When you want to buy before you sell, you face a funding gap — the deposit and purchase price for the new home need to come from somewhere before the sale proceeds arrive.
A bridging loan allows your lender to hold security over both properties simultaneously. During the bridging period, you carry the peak debt — the combined balance of both loans. When your existing property settles, the proceeds pay down the bridge, leaving just the new home loan.
The critical number: end debt
Lenders care about your end debt— the loan you're left with after the sale. They assess whether you can service this amount sustainably. Peak debt is temporary; end debt is permanent. Get the end debt right.
Bridging finance is more expensive than standard home loans — rates are typically 0.5–1.5% higher. It's a short-term solution, not a long-term product.
Peak debt worked example
The lender assesses your ability to service $602,400 long-term — not the $1,030,000 peak.
Open vs. closed bridging
The type you qualify for depends on whether your existing property is already under contract.
Closed bridging
Existing property already under contract
Advantages
- Defined end date (lower lender risk)
- Better rates available
- Easier to approve
- More lenders offer this product
Watch for
- Both settlements must align within days/weeks
- Requires reliable sale timing
Open bridging
Existing property not yet sold
Advantages
- Buy at your preferred time
- No pressure to sell before purchasing
Watch for
- Higher rates (more risk for lender)
- Harder to get approved
- 6–12 month hard limit
- Risk of forced sale if property doesn't sell
Managing bridging loan risk
Bridging loans can be the right solution, but they can also become very expensive if the existing property takes longer to sell than expected. Go in with clear parameters on price and timeline.
Price realistically from day one
The most common bridging disaster: over-estimating the existing property value, setting the price too high, and burning through the bridging period with no buyer. Get an independent market appraisal from an agent who is not trying to win your listing.
Model a worst-case sale price
Before committing to bridging, calculate your end debt if the property sells for 5–10% below your target. If that end debt is still serviceable, you have buffer. If not, the risk is too high.
Keep peak debt costs in check
During bridging, interest accrues on the full peak debt. On $1,000,000 at 7.5%, that's $6,250/month in interest alone. Model the total cost of a 6-month and 12-month bridging period to understand the worst case.
Understand the lender's exit clause
What happens if you don't sell within 12 months? Most lenders will force a sale or significantly increase your rate. Know this before you start — and have a contingency plan.
How the bridging process works
From initial planning to the final clean loan on your new home.
Establish peak debt and end debt
Your broker calculates your maximum peak debt (both loans combined) and expected end debt (new loan after sale). The end debt determines your long-term serviceability — lenders assess whether you can sustain the new loan on its own.
Lender assessment and pre-approval
Bridging lenders assess your income against the end debt, your ability to sell within the bridging period, and whether LVR limits are met. Not all lenders offer bridging — your broker identifies suitable options.
Purchase and settlement on new property
Once approved, you settle on the new home. The lender holds security over both properties. Interest on peak debt begins accruing — capitalised or serviced, depending on the product.
Sell existing property and discharge
When your existing property settles, net proceeds reduce the peak debt to the end debt. The existing property is discharged, leaving a single clean loan on your new home.
Bridging loan FAQs
What is a bridging loan?
A bridging loan is short-term finance that lets you buy a new property before selling your existing one. The lender effectively finances both properties simultaneously for a period (typically up to 12 months). Once your existing property sells, the proceeds pay down the 'peak debt,' leaving you with just the new loan. It solves the problem of needing your sale proceeds to fund the purchase, before those proceeds exist.
What is peak debt in a bridging loan?
Peak debt is the total borrowing during the bridging period — your new loan plus any remaining balance on your existing loan. For example: new home $900,000, existing home loan outstanding $200,000. Peak debt = $1,100,000. When your existing property sells for (say) $650,000, the net proceeds ($450,000 after paying out the $200,000 loan) reduce the peak debt to $650,000, the 'end debt' on your new home.
What's the difference between open and closed bridging?
Closed bridging means your existing property is already under contract with a confirmed settlement date — the bridging period is defined. This is lower risk for the lender and typically easier to approve. Open bridging means your existing property hasn't sold yet — there's no confirmed settlement date. Open bridging is harder to approve, commands a higher rate, and has a firm 6–12 month limit before the lender requires the property to be sold.
How is interest charged during bridging?
Interest on the full peak debt accrues daily. Some lenders allow interest to be capitalised (added to the loan balance) during the bridging period so you don't need to make two full repayments simultaneously. This is helpful for cash flow but increases total cost. Other lenders require you to service the full peak debt from day one. Your broker will confirm which structure each lender offers.
What happens if my property doesn't sell within the bridging period?
This is the main risk of bridging finance. Most lenders allow 6–12 months. If your existing property hasn't sold, the lender may require a forced sale, increase your interest rate significantly, or exit the facility entirely. To mitigate this risk: price the existing property realistically from day one, avoid peak debt that requires an unrealistically high sale price, and have a contingency plan (such as using the new property as ongoing security).
Can I use a bridging loan for property development?
Bridging finance is sometimes used for short-term development funding, but it's a different product with different terms. Residential bridging (owner-occupier moving home) is simpler and has more lender options. Development bridging typically involves commercial bridging lenders with higher rates and fees, LVR limits on the developed value, and specific conditions around construction milestones. Speak to your broker about whether residential or commercial bridging fits your situation.
Buying before you've sold?
Tom structures bridging loans carefully — modelling peak debt, end debt, and worst-case scenarios before you commit. Get the numbers right first.