You've found the right property, but your current home hasn't sold yet.
A bridging loan lets you purchase your new home without waiting for settlement on your existing property. This short term finance option covers the gap between buying and selling, giving you access to funds when timing doesn't align with opportunity.
How Bridging Finance Works in Practice
A bridging loan uses the equity in your current property as security while you purchase your next home. The lender provides funding based on the combined value of both properties, typically for a bridging period of six to twelve months.
Consider a buyer who owns a home in Richmond worth $850,000 with a mortgage of $400,000. They want to purchase a property in Ivanhoe for $950,000. Instead of rushing to sell their Richmond home at a potentially lower price, they use bridging finance to secure the Ivanhoe property first. The lender assesses both properties and approves a bridging loan amount that covers the new purchase. Once the Richmond property sells, the bridging loan gets repaid and the buyer refinances into a standard home loan on their new property.
The loan to value ratio (LVR) across both properties usually needs to stay under 80% to avoid additional costs. In the example above, the buyer would need both properties valued and their existing equity confirmed before the bridging loan application moves forward.
When Emergency Property Funding Makes Sense
You need to act quickly when a property appears at auction or when a private sale requires unconditional exchange within days. In Melbourne's inner suburbs like Carlton, Fitzroy, and South Yarra, auction properties rarely wait for buyers to coordinate their existing property sale.
Bridging finance provides fast approval, often within 48 to 72 hours when your financial position is clear. This timeline matters when you're competing against cash buyers or investors who can move without sale conditions.
In a scenario where a couple found a townhouse in Kew during a spring auction campaign, they had five days until auction day. Their current apartment in Docklands had interested buyers but no signed contract. They applied for a bridging loan on the Monday, received approval by Wednesday, and bid successfully on Saturday. Their Docklands apartment sold three months later, allowing them to exit the bridge and refinance.
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Understanding Bridging Finance Costs
Bridging loan interest rates sit higher than standard variable rates because the lender carries more risk across two properties. You're also paying interest on a larger loan amount for the bridging loan term.
Many lenders offer capitalised interest, meaning the interest gets added to the loan rather than requiring monthly payments. This approach prevents you from making repayments on two properties simultaneously during the bridging period.
Bridging finance costs also include valuation fees for both properties, legal fees for the new purchase, and sometimes a bridging loan application fee. The total expense depends on how long you hold the bridge and how quickly your existing property sells.
The Exit Strategy Requirement
Lenders approve bridging loans based on your exit strategy. You need a clear plan showing how you'll repay the bridging loan settlement amount, typically through selling your existing property.
Your property needs to be market-ready or very close to it. If your current home requires significant renovation before sale, lenders view this as increased risk and may decline the application. You'll need evidence the property can sell within the bridging loan term, such as a recent appraisal or comparable sales data.
For first home buyers with an existing property, this means understanding your local market conditions. A property in an area with slow turnover might not suit bridging finance if sales typically take eight to ten months.
Bridging Loan Security and Approval Requirements
The lender takes security over both your existing property and the new purchase. Your combined equity across both properties determines the loan amount you can access.
Most lenders require you to demonstrateservicing capacity for both loans simultaneously, even with interest capitalisation. This means your income needs to support the total debt, not just the expected final loan after your property sells.
You'll need to provide an exchange contract for the property you're purchasing, recent payslips or tax returns, and details of your existing mortgage. The approval process also includes valuations on both properties to confirm the LVR calculations work within the lender's policy.
Alternatives Worth Considering
If bridging loan risks feel too high or your exit strategy isn't certain, equity release into a standard home loan might work better. This approach lets you access funds from your existing property without the time pressure of a bridging period.
Some buyers prefer deposit bonds to secure a property with an extended settlement period, giving them more time to sell their existing home without bridging finance. This works when the seller accepts a longer settlement and you're confident your property will sell within that timeframe.
For those upgrading your house with more flexibility on timing, selling first and renting temporarily removes the dual loan burden entirely, though it means moving twice and potentially missing out on properties during the rental period.
If you're weighing up whether bridging finance suits your circumstances or exploring what other loan options might work better for your timeline, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How long does a bridging loan last?
Most bridging loans run for six to twelve months. The bridging period gives you time to sell your existing property and repay the temporary finance. Lenders set the term based on your exit strategy and how quickly your property is likely to sell.
Can I get a bridging loan with a small deposit?
Bridging loans rely on equity in your existing property rather than a cash deposit for the new purchase. You typically need at least 20% equity across both properties combined to avoid additional costs. Your existing equity becomes the effective deposit for the bridging loan.
What happens if my property doesn't sell during the bridging period?
If your property hasn't sold by the end of the bridging loan term, you may need to extend the bridge or consider other options like refinancing both properties into a standard loan. This is why lenders require a strong exit strategy before approving your application.
How quickly can bridging finance be approved?
Bridging loan approval can happen within 48 to 72 hours when your financial position is straightforward and both properties are easily valued. Fast approval depends on having your documentation ready and clear equity in your existing property.
Do I make repayments during the bridging period?
Many lenders offer capitalised interest, which means the interest gets added to your loan rather than requiring monthly payments. This prevents you from paying two mortgages simultaneously while you own both properties.
