Bridging Loans

Two terms do all the work in a bridging assessment, and understanding them makes the rest of the product straightforward.

Because servicing is generally assessed on end debt, bridging can work for households whose income would never support both mortgages at once. That is the genuine advantage of the structure, and it is also why lenders look so hard at whether the departing property will actually sell.

Where a sale has fallen over and settlement on the new property is days away, the answer is sometimes not bridging at all. Short-term private funding secured against the departing property can settle faster, at a higher cost, and be repaid on sale. Our private lending and bridging finance pages cover that route.

On most bridging loans you do not make repayments during the bridging period. Interest is added to the balance instead, which is why peak debt grows every month the departing property remains unsold.

This is a convenience with a sting. The interest is charged on the whole peak debt, and it compounds. A sale that takes two months longer than planned adds to the end debt you carry for the next twenty years. Lenders build a buffer for this into the assessment, and you should build one into your own thinking.

• Substantial equity in the departing property. Bridging is an equity product before it is an income product.
• Peak debt within the lender’s LVR limit across both properties combined.
• Servicing demonstrated on the end debt, and on peak debt with some lenders.
• A credible sale position: an unconditional contract for closed bridging, or a marketing plan and appraisal for open.
• A clear end date. Bridging terms are defined and extensions are assessed, not assumed.
• Valuations on both properties, which the lender orders and relies on rather than your estimate.

1. 01Price the departing property to sell, not to test the market. The bridging clock is the real constraint.
2. 02Have the property on the market before or at the same time as the purchase, not afterwards.
3. 03Model the numbers at a sale price below the appraisal, then check whether the end debt is still serviceable.
4. 04Agree with the lender what happens if an extension is needed, before you need one.
5. 05Keep a cash buffer. Two mortgages, duty and moving costs land in the same quarter.

1. 01

   Model peak and end debt

   Before you bid. We use a conservative sale figure and net proceeds after costs, so the end debt is a number you can live with rather than a hopeful one.

2. 02

   Choose closed or open

   If the departing property is under contract, the file is far simpler. If not, we lodge with lenders who genuinely write open bridging.

3. 03

   Valuations on both properties

   The lender orders and relies on its own. The departing valuation is the one that decides the plan.

4. 04

   Approval and documents

   Approval covers peak debt, the bridging period and the end debt structure. Read the end date carefully.

5. 05

   Purchase settles

   You own both properties. Interest capitalises. The departing property is on the market.

6. 06

   Sale settles

   Net proceeds repay peak debt down to the end debt, which converts to an ordinary home loan on principal and interest.