Bridging Finance: How to Buy Before You Sell
One of the most stressful situations in property is finding the perfect next home before you have sold your current one. Bridging finance is the lender's solution: a short-term loan that lets you settle the new purchase while you finish selling the existing house. Used well it removes a huge amount of stress. Used poorly it can become an expensive trap.
How it works
A bridging loan effectively combines your existing mortgage and the new mortgage into one larger loan for a short window. You make interest-only payments on the full balance until the existing house sells, at which point the sale proceeds clear the bridge and you are left with just the new mortgage.
The bank will require:
- Sufficient equity in the existing property (typically you need 30 percent equity or more in the property being sold)
- A realistic listing price and timeline for the existing house
- Servicing of the full combined loan at the stress-test rate, or evidence of how you will manage if the sale takes longer than expected
Two flavours of bridging
There are two main structures:
Closed bridging — the existing property is already under contract (sold but not yet settled). You have a confirmed buyer and settlement date. This is the cleanest scenario and most banks will fund without fuss.
Open bridging — the existing property is on the market but not yet under contract. There is real uncertainty about whether and when it sells. Banks treat this more cautiously: shorter terms (often six months), tighter equity requirements, sometimes a slightly higher rate.
Costs to plan for
- Interest on the full combined loan for the bridging period — this can be 6 to 12 months of interest at the floating rate
- Possible bridging set-up fees
- Sometimes a higher rate during the bridge period
- Legal fees for both transactions
The risks to manage
The big risk is that the existing house takes longer to sell than expected, or sells for less than the bridging loan assumed. To manage this:
- Be realistic about the listing price — don't anchor to the peak of the cycle
- Have a backup plan: would you accept a lower offer to clear the bridge?
- Make sure you can service the full combined loan for 12 months in case the sale drags
- Consider using a "subject to" clause linked to your sale
When bridging makes more sense than the alternatives
The alternatives to bridging are usually:
- Selling first, renting for a few months, then buying — less risk but two moves
- A long settlement on the new property — depends on whether the vendor will accept
- A conditional offer "subject to sale" — depends on vendor willingness in a tight market
In a tight market with little inventory, conditional offers struggle to win. Bridging or selling first are often the only realistic plays.
Get the structure right
Bridging finance is one of the more complex lending products and is not offered by every bank or in every situation. The right structure depends on equity, income, and how confident the lender is in the timeline for selling. Talk to SMS Loans early in the process — sometimes the conversation about how bridging could work removes the stress of buying before you sell.