Buying Before Selling Could Cost You $30,000+ in Mistakes

A bridging loan is a short-term finance arrangement (maximum 12 months) that allows you to buy a new property before selling your existing one. During the bridging period, you hold both properties simultaneously. The lender takes security over both properties, and your total borrowing — known as "peak debt" — includes the new purchase loan plus the remaining balance on your existing property. Once your existing property sells, the sale proceeds pay down the bridging loan, leaving you with a residual home loan on just the new property. Interest during the bridging period is typically capitalised (added to the loan balance), meaning you may not need to make repayments during the bridge.

The cost of a bridging loan depends primarily on how long it takes to sell your existing property. On a typical peak debt of $1,135,000 at 6.5% with interest capitalised, you would accumulate approximately $6,150 per month in interest. A 3-month bridge costs roughly $18,400 in capitalised interest. A 6-month bridge costs around $37,400. A 12-month bridge costs approximately $76,700. Additionally, there may be application fees, valuation fees on both properties, and legal costs. The single biggest way to reduce bridging costs is to sell your existing property as quickly as possible — which is why having a realistic sale timeline and a good real estate agent is critical.

Peak debt is the maximum amount you owe at any point during the bridging period — when you hold both properties simultaneously. It includes the new purchase price plus costs (stamp duty, legal fees), your existing mortgage balance, and any capitalised interest. Lenders assess your bridging loan eligibility based on peak debt, typically requiring the peak debt Loan-to-Value Ratio (LVR) to stay at or below 80% of the combined value of both properties. For example, if your existing home is worth $800,000 and your new home is $750,000, your combined property value is $1,550,000 and your maximum peak debt at 80% LVR would be $1,240,000.

This depends on the lender and product. Some lenders offer Interest Capitalised (ICAP) bridging loans where all interest is added to your loan balance during the bridging period — meaning no repayments are required. This protects your cashflow but increases your total debt. Other lenders require Interest Only (IO) payments on the full peak debt during the bridging period, which can be substantial — for example, IO payments on a $1.1M peak debt at 6.5% would be approximately $5,958 per month. A broker can help you find the right option based on your cashflow situation.

Most lenders cap bridging loans at 80% LVR based on peak debt — the maximum amount you owe when holding both properties. Select lenders may allow up to 85% with Lenders Mortgage Insurance (LMI) for standard residential properties, though LMI waivers (such as those for medical professionals) typically cannot be applied to bridging loans. The LVR is calculated against the combined value of both properties (existing plus new). Some lenders also apply a "sale equity rule" requiring the bridging portion not to exceed 85% of your existing property's value, which can further limit your options.

This varies significantly between lenders. Several major lenders restrict bridging finance to owner-occupied purchases only — meaning the new property must become your primary residence. If you're looking to purchase an investment property using bridging finance, your options are more limited, but not impossible. Some lenders do offer bridging for investment purchases, typically with stricter criteria. This is one of the key areas where broker access becomes critical, as knowing which lenders support investment bridging can save you from declined applications and wasted time.

All bridging loans have a maximum 12-month term, and lenders expect the existing property to be sold within that period. If your property hasn't sold, you could face several outcomes: some lenders may consider an extension under exceptional circumstances, but this requires a full credit reassessment and is not guaranteed. Others may require you to refinance the bridging loan to another product or lender. In worst-case scenarios, you may need to accept a lower sale price to meet the deadline. This is why realistic pre-sale planning — including 2-3 agent appraisals and a conservative timeline — is essential before entering a bridge.

The sale equity rule is a policy applied by certain lenders that limits the bridging loan amount to no more than 85% of the value of your existing property (the one being sold). This means if your existing property is worth $800,000, the bridging component of your loan cannot exceed $680,000 — regardless of what you're purchasing or what other equity you hold. This rule protects both the borrower and the lender by ensuring the sale proceeds will comfortably cover the bridging debt. Not all lenders apply this rule, which is another reason why comparing lender policies through a broker is important.

Yes, some lenders offer approval in principle for bridging finance before you've identified a specific new property. This can be extremely valuable if you're planning to buy at auction, as it gives you confidence to bid knowing your bridging finance is pre-arranged. The lender will assess your existing property value, current mortgage, estimated purchase range, and your overall financial position. Once you find a property, the approval moves to a formal stage with the specific purchase details. Your broker can arrange this pre-approval so you're ready to move quickly when the right property comes up.

Serviceability assessment varies by lender and depends on whether you'll have "end debt" after the sale. For bridging loans with end debt (a residual loan remains), lenders assess your ability to service the residual loan based on income and expenses — similar to a standard home loan. For bridging loans with no end debt (sale proceeds fully repay everything), some lenders waive standard serviceability requirements entirely. Some lenders also exempt bridging from Debt-to-Income (DTI) ratio thresholds. If your income can't cover peak debt repayments, certain lenders will accept evidence of funds to cover interest during the bridging period.

A bridging loan application typically requires: proof of identity (driver's licence, passport), income verification (recent payslips, tax returns, bank statements), details of your existing property (current mortgage statements, council rates notice, recent valuation or comparable sales), details of the new property (contract of sale or pre-approval details), evidence of sale activity for your existing property (agent agreement, listing confirmation, or an unconditional contract of sale if already sold), and a completed application form. Some lenders require your property to be listed for sale before approval, while others accept a plan to list within 30 days. Your broker will guide you through the specific requirements.

This is challenging but not impossible. Since most lenders assess bridging on peak debt LVR (total borrowing against the combined value of both properties), owing more than 80% on your current property makes it harder to stay within the 80% peak debt threshold. However, it depends on relative values — if your new property is less expensive, or if you have savings to contribute, the numbers may still work. Select lenders may allow up to 85% peak LVR with LMI. A broker can model the exact numbers for your situation and determine whether bridging is feasible, or whether alternatives (such as selling first with a longer settlement) might be more appropriate.