Bridging finance lets you buy your next property before you've sold your current one.
For homeowners in Glen Iris looking to upgrade or relocate, the timing challenge is real. You find the right property, but your current home hasn't sold yet. A bridging loan uses the equity in your existing property as security to fund the purchase of your next home, giving you up to 12 months to sell without the pressure of a rushed sale or temporary rental.
How Bridging Finance Works When You Buy Before Selling
A bridging loan provides temporary finance by using both your existing property and your new purchase as security. The lender assesses the combined loan to value ratio across both properties, and you typically pay interest only on the bridged amount during the transition period.
Consider a Glen Iris homeowner with a property worth around the suburb's median, with an outstanding mortgage of $400,000. They want to purchase another property in the area but haven't listed their current home yet. The lender would assess the equity in the existing property, add the new purchase amount, and calculate the total LVR. If the combined borrowing sits below 80% of the total security value, the application typically qualifies for bridging finance without needing lenders mortgage insurance on the bridged portion.
The bridging period starts from settlement of your new property and ends when your existing property sells. During this time, you're holding both properties and making repayments on the total loan amount, though most lenders allow the interest on the bridged portion to be capitalised rather than paid monthly.
What the Bridging Loan Application Process Involves
Lenders assess bridging finance applications by looking at your ability to service both loans temporarily and the equity available across both properties. You'll need a current valuation on your existing property, a contract of sale or agreed purchase price for the new property, and evidence that your current home will sell within the bridging period.
Most lenders require your existing property to be listed for sale before approving the bridging loan, or at minimum, have a clear exit strategy in place. They'll also want an appraisal from a local agent confirming the likely sale price and timeframe. The serviceability assessment assumes you're carrying both loans at the same time, so income verification is assessed on that basis.
The application timeline for bridging finance is usually faster than a standard home loan, particularly if you're purchasing at auction or need to exchange contracts quickly. In our experience, bridging loan approval can be structured within days when the equity position is strong and the documentation is ready.
Bridging Loan Costs and How Interest Is Charged
Bridging finance typically attracts a higher variable interest rate than a standard home loan. The rate applies to the bridged amount, which is the portion of the loan covering the new purchase before your existing property sells.
Interest on the bridged portion is usually capitalised, meaning it's added to the loan balance each month rather than paid in cash. This approach avoids the immediate cash flow pressure of servicing two full loans while you're holding both properties. Once your existing property sells, the bridged loan is repaid from the sale proceeds, and you're left with a standard mortgage on the new property.
Bridging finance costs also include valuation fees for both properties, legal fees for settlement, and in some cases a bridging loan establishment fee. The total cost depends on the size of the bridged amount and the length of the bridging period, but it's typically offset by the ability to secure the right property without selling under pressure or paying for temporary accommodation.
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Bridging Loan Security and LVR Limits
Lenders calculate the loan to value ratio by dividing the total debt across both properties by the combined value of both properties. Most lenders will approve bridging finance up to 80% LVR without lenders mortgage insurance, though some will extend to higher ratios depending on your income and the strength of the exit strategy.
The LVR calculation shifts once your existing property sells. At that point, the bridged portion is repaid, and the remaining loan is assessed against the value of your new property alone. If the new loan sits above 80% of the new property value, LMI may apply at that stage unless you're using a low LMI loan structure or have access to a professional lending package.
Glen Iris properties tend to hold strong valuations due to the suburb's proximity to Gardiner Station, the Toorak Road retail precinct, and zoning for sought-after school zones. This stability often works in favour of bridging loan applications, as lenders have confidence in both the security value and the sale timeline.
When Bridging Finance Makes Sense in Glen Iris
Bridging finance is most effective when you have significant equity in your current property and a clear timeline for selling. It's particularly suited to Glen Iris homeowners upgrading within the area or moving to nearby suburbs like Malvern, Camberwell, or Hawthorn, where property values and sale timelines are relatively predictable.
As an example, a family looking to move from a three-bedroom period home to a larger property closer to Glen Iris Primary School might find the right house before they've prepared their current property for sale. Rather than missing the opportunity or selling under pressure, bridging finance allows them to secure the new property, move in, and present their existing home for sale in peak condition without the stress of simultaneous settlement.
Bridging finance is less suited to situations where the equity position is tight, the sale timeline is uncertain, or the borrower cannot comfortably service both loans during the transition. If your existing property is in a slower market or requires significant work before it can be sold, a bridging loan carries more risk. In those cases, selling first or exploring equity release to fund a smaller upgrade may be more appropriate.
Bridging Loan Settlement and the Exit Strategy
The exit strategy is the part of the bridging loan application that lenders scrutinise most carefully. They want to see evidence that your existing property will sell within the bridging period, which is typically six to twelve months.
You'll usually need a letter from a real estate agent confirming the expected sale price and timeframe, along with evidence that the property will be listed within a set period after the new purchase settles. Some lenders require the property to be listed before they approve the bridging loan. Others will accept a signed agency agreement or a commitment to list within 30 days of settlement.
Once your existing property sells, the settlement proceeds are used to repay the bridged portion of the loan. If there's a surplus after repaying the bridged amount, it can be used to reduce the remaining loan on your new property or returned to you as cash. If the sale price falls short of the expected amount, you may need to bring additional funds to settlement or refinance the shortfall into the ongoing loan.
Alternatives to Bridging Finance for Glen Iris Buyers
If bridging finance doesn't suit your situation, there are other ways to buy before you sell. A family pledge or guarantor arrangement can provide the additional security needed to purchase without selling first, particularly for buyers with strong income but limited equity. This approach avoids the higher interest costs of bridging finance but requires a family member to offer their property as additional security.
Another option is a deposit bond, which can be used in place of a cash deposit when purchasing, giving you more time to arrange finance or sell your existing property before settlement. Deposit bonds are accepted by most vendors and can be particularly useful for off-the-plan purchases or properties with longer settlement periods.
For buyers who have already found their next property but want to avoid bridging finance altogether, buying your next home with a longer settlement period or a subject-to-sale clause may provide the breathing room needed to sell your existing property first. Each approach has different cost and risk considerations, and the right structure depends on your equity position, timeline, and how competitive the market is for the property you're purchasing.
Bridging finance removes the timing pressure that often forces homeowners into compromised decisions. Whether you're moving within Glen Iris or relocating to a neighbouring suburb, the ability to secure the right property without selling first can make the difference between a considered upgrade and a rushed compromise. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How long does a bridging loan last?
Bridging loans typically last between six and twelve months, starting from settlement of your new property and ending when your existing property sells. The term is agreed upfront with the lender based on your expected sale timeline and the agent's appraisal.
Do I need to make repayments during the bridging period?
Most lenders allow the interest on the bridged portion to be capitalised, meaning it's added to your loan balance rather than paid monthly. You'll continue making repayments on your existing mortgage, but the bridged amount typically doesn't require cash repayments until your property sells.
What happens if my property doesn't sell during the bridging period?
If your property hasn't sold by the end of the agreed bridging term, you'll need to extend the loan, refinance, or bring in funds from another source to repay the bridged amount. Lenders assess the exit strategy carefully at application to minimise this risk.
Can I get bridging finance if my LVR is above 80%?
Some lenders will approve bridging finance above 80% LVR, but it depends on your income, the strength of your exit strategy, and whether you're willing to pay lenders mortgage insurance. Most bridging loans are structured to keep the combined LVR at or below 80% to avoid LMI.
Is bridging finance more expensive than a standard home loan?
Bridging finance typically attracts a higher interest rate than a standard home loan, and there are additional costs such as valuations and establishment fees. However, the total cost is often offset by avoiding a rushed sale or temporary rental during the transition.
