Bridging finance, explained

Moving to your next home rarely lines up perfectly. Sometimes the right property comes up before your current one has sold; sometimes you'd rather not move twice into a rental in between. Bridging finance exists to cover that gap, but it's not the only way to manage the move, and it isn't free of risk.

What is bridging finance?

Bridging finance is a short-term loan that funds your next home before your current one sells. Rather than waiting for your existing property to settle, the lender advances the purchase against the combined equity in both homes, then you repay it (in whole or in part) once your current home sells.

Buy-before-you-sell vs sell-first

There are two broad ways to manage the move:

• Sell first: you know exactly how much you have to spend, but you may need to rent in between or feel pressure to buy quickly once your home sells.
• Buy before you sell (bridging finance): you can secure your next home without rushing, and avoid moving twice, but you're carrying two properties until the sale settles.

Neither path is automatically better - it comes down to your equity position, how confident you are about selling, and how much certainty you want over your next home. For a fuller look at the sell-first path and how to weigh the two, see buying your next home before selling.

Peak debt and end debt, in plain English

These two terms sound complicated but describe a simple idea. Say you own Property A (your current home) and want to buy Property B (your next home) before Property A sells:

• Peak debt: your existing loan on Property A plus the new loan needed for Property B, added together. This is the most debt you'll carry at any point, while you own both properties.
• End debt: what's left once Property A sells and the proceeds pay down the peak debt. This is essentially the ordinary loan you'd have had on Property B anyway, funded with the equity and proceeds from Property A.

The bridging period is the time between settling on Property B and settling the sale of Property A - the shorter it is, the less time you're carrying peak debt.

How interest is generally treated

During the bridging period, interest generally accrues on the peak debt. Depending on the lender and the product, that interest may be paid as you go or capitalised (added to the loan balance rather than paid monthly) until your current property sells and the loan reduces to the end debt. Exactly how it's structured varies by lender, so we'll walk you through the options that suit your situation.

Bridging is short-term by design. Because interest keeps building on the peak debt for as long as you hold both homes, you're strongly incentivised to sell your current one quickly: the sooner it sells, the less interest you pay. That cost is really the price of flexibility, and for many movers it's worth paying. It buys the comfort of securing the right home without a rushed sale, and takes a lot of the stress out of moving.

The risks

The main risk is straightforward: your plan assumes your current property will sell within a certain timeframe and for a certain price. If it takes longer to sell, or sells for less than expected, your peak debt, and the interest cost of carrying it, runs for longer than planned. Lenders assess your capacity to service peak debt before approving a bridging loan, which is one reason it's worth having a realistic view of your property's likely sale price and timeframe before committing.

Alternatives worth considering

Bridging finance isn't the only way to manage buying and selling around the same time:

• Simultaneous settlement: aligning the settlement dates of your sale and purchase on the same day, avoiding the peak debt period entirely, though it takes more coordination and offers less flexibility on timing.
• Subject-to-sale contracts: making an offer conditional on selling your current home first, which gives more certainty but a weaker negotiating position and a real risk of missing out on the property.

Who bridging finance suits

Bridging finance tends to suit homeowners with genuine equity in their current property, who are confident of selling within a reasonable timeframe, and who value the certainty of securing their next home over minimising cost. It won't suit everyone - if your equity is tight or your local market is slow, one of the alternatives above may be a better fit. We cover the full range of options for upsizers on our next home loans page.

Frequently asked questions