Timing can be one of the trickiest parts of moving homes. If you’re planning to sell your current property to help fund your next purchase, a bridging loan is one option you may want to explore. 

With rising interest rates and higher living costs, some borrowers are looking at alternative ways to manage the transition between selling and buying. Bridging finance has become one of those options. 

Here’s a closer look at how it works and what to consider. 

What is a bridging loan? 

A bridging loan is a short-term financing option that may allow you to purchase a new property before your existing home is sold. As the name suggests, it’s designed to bridge the gap between the two transactions. 

In simple terms, a lender may use the equity in your current home to help fund your next purchase. 

In competitive property markets, where homes can sell quickly, some buyers consider bridging finance to act faster. Making an offer that’s subject to the sale of your current home may not always appeal to sellers. With bridging finance, you may be able to structure your offer as ‘subject to finance’ instead, which can sometimes be more attractive. 

It may also help reduce the need for temporary accommodation between selling your current home and moving into your new one. 

Bridging loans are used by a range of homeowners, whether they’re upsizing, downsizing, or relocating. 

How do bridging loans work? 

Bridging loans are typically set up for a short period, often between six and 12 months. In some cases, they may only be needed for a few weeks if your existing property sells quickly. 

When approved, the lender temporarily finances both properties, your current home and the new one. 

During this period, the total amount owed is known as the ‘peak debt’. This can include the remaining balance on your existing mortgage, the cost of the new property and any associated expenses. 

Repayments are usually interest-only and in some cases, the interest may be added to the loan balance until your current property is sold. 

Once the sale is complete, the proceeds are used to reduce the loan, leaving you with a standard mortgage on your new home. 

When might a bridging loan be useful? 

While not suitable for everyone, bridging finance may be worth considering if: 

• You find a property you want to secure before selling your current home  
• You want to avoid the inconvenience of moving into temporary accommodation  
• You’re navigating a fast-moving market with limited supply  
• You have sufficient equity in your existing property  

Things to keep in mind

There are also potential drawbacks to consider: 

• Interest rates may be higher than standard home loans 
• Managing debt across two properties can increase financial pressure  
• You’ll need to compare the cost of a bridging loan with alternatives, such as selling first and arranging temporary housing  
• If your property takes longer to sell, or sells for less than expected, you could face a shortfall and may need to contribute additional funds 

What lenders look at

When assessing a bridging loan application, lenders typically consider: 

• The value and equity in your current property 
• Your ability to manage repayments on the total (peak) debt  
• The expected sale price of your existing home  
• Current market conditions 

Planning your next move

Bridging loans are generally more suitable for borrowers with strong equity and a clear exit plan, such as a confirmed or expected property sale. They can provide flexibility when timing your move, but it’s important to weigh up the costs and risks carefully. 

If you’re thinking about buying before selling or want to understand whether bridging finance could suit your situation, speak with our team today. We can help you assess your options and find a structure that aligns with your goals and circumstances.