Bridging finance solves timing gaps in property transactions, letting you buy before selling. Here's your complete guide to Australian bridging loans.
What is Bridging Finance?
Bridging finance is a short-term loan (typically 1-24 months) that "bridges" the gap between buying a new property and selling an existing one.
Common Uses:
- Buy before selling current home
- Auction purchases (fast settlement)
- Property development (bridge to construction loan)
- Time-sensitive property opportunities
- Settlement shortfalls
How Bridging Finance Works
Typical Scenario:
Your Situation:
- Current home worth $700,000, owing $200,000
- Want to buy new home for $900,000
- Need $900,000 but must sell current home first
Bridging Solution:
- Bridging loan: $900,000 (secured by both properties)
- Buy new property immediately
- Sell current home over next 6-12 months
- Repay bridging loan from sale proceeds
- Refinance to standard mortgage
Types of Bridging Finance
Closed Bridge
Timeline: Fixed end date (sale contract exchanged) Term: 1-6 months typical Rate: Lower (0.8-2% per month) Best for: Contract exchanged, settlement pending
Open Bridge
Timeline: No fixed end date Term: 6-24 months Rate: Higher (1.5-3% per month) Best for: Haven't sold yet, need time to sell
Peak Debt Bridge
How it works: Use equity from both properties LVR: Combined up to 80% Best for: Strong equity position
Bridging Finance Costs
Interest Rates:
- Bank bridging: 0.8-1.5% per month (9-18% p.a.)
- Private bridging: 1.5-3% per month (18-36% p.a.)
- Commercial bridging: 1-2.5% per month (12-30% p.a.)
Fees:
- Establishment: 1-2% of loan
- Valuation: $300-$2,000 per property
- Legal: $1,500-$5,000
- Exit fee: Sometimes 1-2%
Example Cost: $600,000 bridge for 6 months @ 1.5%/month:
- Interest: $54,000 (6 × $9,000)
- Establishment: $12,000 (2%)
- Valuations: $2,000
- Legal: $3,000
- Total: $71,000 for 6 months
Expensive? Yes. Worth it? Often yes if it secures your dream home.
Requirements for Bridging Finance
You typically need:
✅ Strong equity: Combined 70-80% LVR maximum ✅ Exit strategy: Clear plan to repay (property sale) ✅ Serviceability: Ability to pay interest (or capitalize it) ✅ Property security: Acceptable property types
Documents:
- Both property details
- Current loan statements
- Income evidence
- Rates notices
- Sale contract (if selling)
- Purchase contract (for new property)
Bridging Finance Timeline
Fast Approval Process:
Day 1-3: Application
- Apply with lender
- Provide property details
- Explain timing/strategy
Day 3-7: Valuation
- Lender values both properties
- Confirms LVR acceptable
Day 7-14: Approval
- Conditional approval
- Loan documents prepared
Day 14-21: Settlement
- Sign documents
- Mortgage registered
- Funds released for purchase
Total: 14-21 days (faster than traditional loans)
When to Use Bridging Finance
Ideal situations: ✅ Found perfect property before selling current one ✅ Won auction, need to settle quickly ✅ Market timing (buy in slow market, sell in strong) ✅ Avoid renting between homes ✅ Secure school zone urgently
Avoid bridging if: Current property unlikely to sell Can't afford bridge + new mortgage repayments Minimal equity in current property Can wait to buy after selling
Bridging Finance Risks
Key Risks:
1. Property Doesn't Sell
- Stuck paying bridge interest (expensive!)
- May need to extend (more cost)
- Worst case: Forced sale by lender
Mitigation:
- Price current property realistically
- Use real estate agent
- Have backup plan
2. Property Values Drop
- LVR increases if values fall
- May breach loan conditions
Mitigation:
- Conservative LVR (70% not 80%)
- Only bridge in strong markets
3. High Costs
- Interest compounds quickly
- Longer than expected = much more cost
Mitigation:
- Sell quickly
- Get fixed-term bridge if possible
Bank vs Private Bridging Finance
Bank Bridging
Rates: 0.8-1.5% per month LVR: Up to 80% Approval: 3-6 weeks Requirements: Good credit, income, standard properties
Private Bridging
Rates: 1.5-3% per month LVR: Up to 75% Approval: 1-2 weeks Requirements: Equity-focused, flexible on credit
When to use private:
- Need fast approval
- Credit issues
- Unusual properties
- Complex situation
Ready to explore bridging finance? Connect with bridging finance lenders.