Bridging loans: buying before you sell

Bridging finance solves a specific problem: a household has found the property it wants to buy but has not yet sold the one it owns. Rather than making the purchase conditional on a sale, which weakens an offer considerably, the borrower takes short term finance that covers both properties until the first one sells.

The arrangement is useful and widely used, but it is short term, more expensive than ordinary home lending, and it transfers the risk of the sale price onto the borrower in a way that a conditional contract does not. Understanding the two figures at the centre of it, peak debt and end debt, makes the risk visible.

Peak debt and end debt

A bridging loan is defined by two amounts.

Peak debt is the total borrowing during the bridging period. It comprises the balance of the existing mortgage, the purchase price of the new property, transfer duty and purchase costs, and often the capitalised interest, less any cash the borrower contributes.

End debt is what remains after the existing property is sold and the net proceeds are applied to reduce peak debt. The end debt then becomes an ordinary home loan, repaid over a normal term.

The lender assesses both. It needs to be satisfied that peak debt is adequately secured across the two properties, and that the borrower can service the end debt on an ongoing basis. A borrower who can service the end debt comfortably may still be declined if peak debt is too high relative to the combined value of the two properties.

Closed and open bridging

Feature	Closed bridging	Open bridging
Status of the sale	Existing property already under contract with a known settlement date	Existing property not yet sold
Certainty of end debt	Known	Unknown until the sale occurs
Lender appetite	Broad	Narrower, with stricter conditions
Typical term	Weeks to a few months	Commonly up to six months for an established home, and longer where a new home is being built
Risk to the borrower	Limited, mainly settlement failure	The sale price, the time to sell, and accruing interest

Closed bridging is the simpler case and is often used to cover a short mismatch between settlement dates, sometimes only days. Open bridging is where the real risk sits, because neither the price nor the timing of the sale is known when the commitment is made.

How interest is charged

Most bridging arrangements capitalise interest. The borrower makes no repayment on the bridging portion during the term; interest accrues and is added to the balance, and the whole amount is cleared when the property sells. Some lenders instead require interest only repayments on the bridging portion, and some require ordinary repayments on the end debt portion while capitalising the rest.

Capitalisation is convenient because it avoids a household paying two mortgages from income at the same time. It is also compounding: interest is charged on interest, and the balance grows every month the sale takes longer than expected. A borrower should ask specifically how interest is treated, what the rate is, and whether it differs between the bridging and end debt portions.

A worked example

The following figures are illustrative only and use an assumed bridging rate of 7.00 per cent. Assume a household in New South Wales owning a home worth $900,000 with a $200,000 mortgage, buying a new home at $1,100,000, with $50,000 in cash available for costs.

Component of peak debt	Amount
Existing mortgage	$200,000
New purchase price	$1,100,000
Transfer duty, indicative owner-occupier rate	$43,687
Conveyancing, registration and other costs	$5,000
Less cash contributed	Minus $50,000
Peak debt at drawdown	$1,298,687

If the existing home takes six months to sell and settle, capitalised interest at 7.00 per cent adds about $46,122, taking the balance to roughly $1,344,809. Over three months the interest would be about $22,860 and over nine months about $69,794, which shows how directly the cost tracks the time on market.

Assume the existing home sells for $900,000, with agent commission of 2.2 per cent and $5,000 of marketing and legal costs, leaving net proceeds of about $875,200. Applying those proceeds leaves an end debt of about $469,609, which is 42.7 per cent of the value of the new property and requires about $2,816 a month at an assumed 6.00 per cent over 30 years.

Now change one assumption. If the existing home sells for 10 per cent less, at $810,000, net proceeds fall to about $787,180 and the end debt rises to about $557,629, or 50.7 per cent of the new property's value. The monthly repayment rises accordingly, permanently. A 10 per cent movement in the sale price of the old home has changed the household's long term debt by roughly $88,000.

That sensitivity is the essential feature of open bridging. The purchase price is fixed on the day of exchange; the sale price is not. The mortgage repayment calculator can be used to test the end debt at several sale prices before committing.

How lenders assess a bridging application

Requirements differ, but the common elements are these.

• A maximum loan to value ratio across both properties. Lenders typically require peak debt to sit within a defined percentage of the combined value of the two securities, and the ratio permitted is usually lower than for a standard loan.
• Serviceability assessed on the end debt. Because the bridging interest is capitalised, most lenders assess the borrower's capacity against the end debt rather than peak debt. The assessment still applies the buffer required by the Australian Prudential Regulation Authority of at least three percentage points above the product rate.
• A realistic valuation of the property to be sold. Lenders generally apply a discount to the expected sale price when sizing the end debt, precisely because the sale has not occurred.
• A defined bridging term. Commonly up to six months where an established home is being sold, and longer where a new home is being built.
• Evidence the property is genuinely being marketed, such as an agency agreement.

Bridging loans for owner-occupiers sit outside the debt to income limit that APRA has applied since 1 February 2026, under which authorised deposit-taking institutions may write no more than 20 per cent of new mortgage lending at six times income or more. APRA excluded bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings from that limit, which is a meaningful exemption given that peak debt would otherwise produce a very high ratio.

The alternatives

Bridging finance is one of several ways to manage the timing problem, and it is not always the best.

• Sell first, then buy. Removes the price risk entirely. The cost is the need for interim accommodation and the risk that prices rise between the sale and the purchase.
• A long settlement on the purchase. Negotiating a settlement of 90 or 120 days may provide enough time to sell without any bridging at all. This costs nothing if the seller agrees.
• Simultaneous settlement. Aligning both settlements on the same day, which works but leaves no margin if either transaction is delayed.
• A sale condition in the purchase contract. Protects the buyer but is unattractive to sellers and usually weakens the offer or the price.
• Borrowing against existing equity. Where the existing mortgage is small relative to value, a standard loan increase may fund the deposit and costs without bridging, as the guide to using home equity describes, and the home equity calculator estimates what is available.
• A deposit bond. Covers the deposit at exchange but not the balance at settlement, so it solves only part of the problem.

Managing the risk

Households that use bridging successfully tend to do several things.

1. Obtain an independent appraisal of the existing home before committing, from an agent who is not seeking the listing, and treat the lower end of the range as the planning assumption.
2. Model the end debt at several sale prices, including a figure 10 per cent below expectation, and confirm the repayment on the worst case is affordable.
3. List the existing property before or immediately after exchanging on the new one, because every week of delay capitalises interest.
4. Agree a pricing strategy in advance. A bridging loan with a defined term creates pressure to accept a lower price as the deadline approaches, which is precisely when negotiating position is weakest. Deciding the reserve before that pressure exists is useful.
5. Confirm what happens if the property does not sell within the term, including whether an extension is available, at what rate, and what the lender may require.
6. Check whether the bridging loan permits the existing property to be rented if the sale is abandoned, since that changes the loan's purpose and the tax treatment.

Costs beyond interest

Bridging carries the usual transaction costs of both a purchase and a sale, and several of its own.

• Application or establishment fees on the bridging facility, and in some cases a separate fee on the end debt.
• Valuations on both properties, sometimes repeated if the bridging term is extended.
• Transfer duty and purchase costs on the new property, set out in the guide to the upfront costs of buying a home.
• Selling costs on the existing property, including agent commission and marketing.
• Where the existing loan is discharged, a discharge fee and mortgage registration fees.
• Extension fees if the sale takes longer than the agreed term.

On the illustrative figures above, interest of roughly $46,000 over six months and selling costs of roughly $25,000 mean that the timing decision itself costs about $71,000. That is not an argument against bridging, since selling first also has costs, but it is the figure the decision should be weighed against.

Tax and structural points to settle in advance

Two questions arise often enough to be worth settling before drawdown rather than afterwards.

The first is what happens if the existing home is not sold but retained and rented. Interest on borrowings is generally deductible according to the use to which the borrowed money is put, not according to which property secures the loan. A bridging facility drawn to buy a new home to live in funds a private purpose, so interest on that portion is generally not deductible even if the old property, now rented, forms part of the security. Where retaining the old property is a realistic possibility, the loan should be structured with that in mind from the start, because splitting a loan after the event does not change what the funds were used for. A registered tax agent should confirm the treatment.

The second is whether the two properties will be cross-collateralised. Bridging almost always involves the lender taking security over both, which is unavoidable during the bridging period. What matters is what happens afterwards: whether the security over the retained property is released cleanly once the sale settles, and whether the end debt is documented as a standalone loan. Leaving the structure unresolved can complicate a later refinance or equity release, as the guide to the loan to value ratio explains.

What to ask the lender before committing

• What is the bridging rate, and does it differ from the rate on the end debt?
• Is interest capitalised, or are repayments required during the bridging period?
• What maximum loan to value ratio applies across the combined securities?
• What sale price has been assumed when sizing the end debt, and what discount has been applied to the appraisal?
• What is the bridging term, and what are the terms and cost of an extension?
• What happens if the property does not sell within the term?
• What fees apply to establishment, valuations, discharge and the end debt?
• Will the end debt be a standalone loan, and when is security over the sold property released?

Who bridging tends to suit

Bridging suits households with substantial equity in the existing property, a realistic view of what it will sell for, the capacity to service the end debt with a margin, and a genuine reason to commit to a particular purchase before selling. It suits a closed bridge, where the sale is already contracted, better than an open one.

It suits less well households with little equity, those buying in a rising market and selling in a falling one, and those for whom the worst case end debt would not be serviceable. In a slow market, where selling periods lengthen, open bridging becomes materially riskier, and the property market section provides context on conditions.

This article is general information and not personal advice. Bridging products, rates and terms differ substantially between lenders, and the arrangement should be modelled on actual figures before a purchase is committed to. Households considering it may request a free assessment from an accredited broker.