BRIDGING FINANCE

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Bridging finance is a short-term lending option that may help you purchase a new property before your current property has sold.

It can be useful when you have found your next home and do not want to miss out, but you still need time to prepare, market and settle the sale of your existing property.

A bridging loan is designed to “bridge the gap” between buying your new property and receiving the proceeds from the sale of your current property. Some lenders describe bridging finance as a short-term facility that helps cover this gap when you buy before selling.

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Bridging finance may be useful if:

• you find your next home before your current home has sold;
• you want to avoid renting between selling and buying;
• you need time to prepare or renovate your current property before sale;
• you want to reduce the pressure of trying to line up settlement dates;
• you are buying in a competitive market and need more flexibility.
  
  

In simple terms, bridging finance temporarily allows you to hold debt across two properties:

• your current property, which you intend to sell; and
• the new property you want to buy.

During the bridging period, your total lending may be higher than it will be long term.

This temporary higher loan amount is often referred to as your “peak debt”. This usually includes
your existing loan, the new purchase loan, and sometimes purchase costs, depending on the lender
and your circumstances.

The “bridging period” is the temporary period between purchasing the new property and
selling/settling the current property. Many lenders apply a maximum bridging period, commonly up
to 12 months, but this varies by lender and scenario.

The loan balance expected to remain after your current property has been sold and the sale
proceeds have been applied, then becomes your ongoing loan or “end debt” on the new property.

Bridging finance is not suitable for everyone. Before applying, it is important to understand the
risks and costs.

Potential benefits

• You may be able to buy your next property before selling your current one.
• You may have more time to prepare your current property for sale.
• You may avoid renting or moving twice.
• You may reduce the pressure of aligning sale and purchase settlement dates.
• You may be able to act quickly if the right property becomes available.

Potential drawbacks

• Repayments and interest costs may be higher during the bridging period.
• The longer it takes to sell, the more interest you may pay.
• Your current property may sell for less than expected.
• Your final loan balance may be higher than planned.
• If you cannot sell within the required timeframe, the lender may need to review your options.
• Bridging finance may not be available or suitable for every borrower.
  
  

Before applying for bridging finance, it is worth asking:

• How realistic is the expected sale price of my current property?
• How long might it take to sell in the current market?
• What happens if the property sells for less than expected?
• What happens if the property takes longer to sell?
• What repayments will I need to make during the bridging period?
• What will my repayments be after the sale is complete?
• Do I have enough savings as a buffer?
• Are there alternative options, such as negotiating settlement dates or selling first?
  
  

Bridging finance can be helpful when you want to buy before selling, but it needs to be planned
carefully. It is important to understand the short-term costs, lender requirements, sale risks and
your long-term repayment position.

At Smooth Sailing Finance Consulting, we can help you compare lender options, understand how
different banks assess bridging finance, and work through whether it is suitable for your
circumstances.