Buying a second property
Upsizing, downsizing and holding two properties at once.
Bridging Finance in Sydney
Bridging finance covers the gap when you buy your next home before the current one sells. It solves a genuine timing problem and it is the most expensive way to solve it, so the question is always whether you need it at all.
A bridging loan temporarily funds both properties at once. The lender advances the purchase price of the new home while your existing home is still on the market, then the sale proceeds pay most of it back. What is left is your ongoing home loan, called the end debt.
Peak debt and end debt
Two terms do most of the work in bridging finance, and understanding them makes the rest straightforward.
Peak debt is the total you owe during the bridge: your existing mortgage, plus the price of the new property, plus purchase costs like stamp duty. It is the high point.
End debt is what remains after your old home sells and the proceeds are applied. That is the loan you actually live with, and it is the figure that has to be serviceable long term.
Lenders assess both. Peak debt determines whether they will do the deal at all, since it is a large exposure against two properties. End debt determines whether you can afford the outcome. Plenty of applications pass one test and fail the other. You can model the end debt repayment with our repayment calculator.
Closed and open bridging
The difference matters more than most people expect, and it changes both the price and the availability.
Closed bridging applies when your existing home is already under contract with an unconditional exchange and a known settlement date. The lender knows when they are getting repaid and roughly how much. This is materially easier to arrange and better priced.
Open bridging applies when your home has not sold yet. The lender is carrying an unknown, so fewer of them will participate, the terms are tighter, and they will be conservative about the value they attribute to the unsold property. Bridging terms are typically capped at around six to twelve months, and open bridging sits at the shorter end.
If you can exchange on your sale before committing to the purchase, do. It changes what you are eligible for.
What it costs, and the capitalised interest trap
On most bridging facilities you are not required to make repayments during the bridging period. Interest is capitalised, meaning it is added to the balance rather than paid monthly.
That is a relief for cash flow, because you would otherwise be servicing two properties at once. It is also the feature that hurts people, because interest is accruing on peak debt, which is the largest balance you will ever owe, and the longer your home takes to sell the more of it compounds onto the balance.
Model the slow sale, not the quick one. Before committing, work out what your end debt looks like if the property takes six months to sell rather than six weeks, and at a price below your hoped-for figure. If that scenario still works, bridging is a reasonable risk. If it only works on the optimistic case, it is not.
You will also pay stamp duty on the new purchase during the bridge, which is part of peak debt. The NSW stamp duty calculator and the purchase costs calculator will size that.
The alternatives, which are usually better
We raise these first with almost every client who asks about bridging, because bridging is frequently the answer to a question that has a cheaper answer.
Sell first, then buy. Rent briefly in between if the timing does not line up. Unglamorous, and it removes the risk entirely. You also buy from a stronger position, because you are not under pressure to accept whatever your old home fetches.
Negotiate a longer settlement. A twelve-week settlement on the purchase, or a simultaneous settlement, can remove the need for a bridge altogether. This costs nothing but negotiation and is routinely overlooked.
Use your existing equity. If you have substantial equity, releasing it as a deposit and taking a standard loan on the new property may be cheaper than bridging, particularly if you can carry both loans for a period. Our usable equity calculator shows what might be available, and the equity release page covers how it works.
Where none of those fit, and the property you want will not wait, bridging does its job.
Who bridging suits
It works best for people with substantial equity in the property being sold, a realistic and preferably evidenced view of what it will fetch, an end debt they can comfortably service, and a genuine reason the purchase cannot wait, such as an auction or a property that will not come up again.
It suits people poorly when equity is thin, when the sale price is a hope rather than an appraisal, or when the end debt only works if everything goes right. Downsizers tend to be well suited to it, because their end debt is small or nil by design.
How we help
Not every lender offers bridging, and among those that do the terms differ sharply: the maximum period, whether they will consider open bridging, how conservatively they value the unsold property, and how they treat capitalised interest.
We compare more than 60 lenders, tell you honestly whether one of the alternatives above would serve you better, and model the pessimistic sale scenario rather than the optimistic one. Our service costs you nothing and is disclosed in our Credit Guide.
Common questions
Usually not. Interest is capitalised onto the balance instead, which protects your cash flow while you are carrying two properties. The trade-off is that the debt grows while your old home is on the market, so a slow sale costs you directly.
Commonly six to twelve months, with the shorter end applying when your existing home has not yet sold. Extensions are possible with some lenders but should not be assumed when you are planning.
This is the main risk. You may need to reduce the price to meet the market, request an extension, or in the worst case face pressure from the lender to sell. It is exactly why we model a slow sale at a lower price before recommending bridging at all.
Some lenders will consider open bridging, but the field is narrower and the terms are tighter. If you can exchange on your sale first, closed bridging is easier to obtain and better priced.
No. A deposit bond is a guarantee that covers the deposit at exchange, so no cash changes hands until settlement. It solves a much smaller problem and costs far less. Where a deposit bond is enough, bridging finance is unnecessary.
Buying before you sell?
We will model the slow-sale scenario and tell you if a longer settlement would do the job instead.
Related
Accessing your equity
Often a cheaper way to fund the next purchase than bridging.
Usable equity calculator
How much your current property could realistically support.