Bridging Finance: FAQ

What is bridging finance?

Bridging finance is a short-term loan that helps homeowners buy a new property before selling their current one.

What are the types of bridging loans?

  1. Closed Bridging Loan – For homeowners with a confirmed sale date.
  2. Open Bridging Loan – For homeowners without a buyer yet, lasting 6-12 months.

How does it work?

  1. The lender calculates peak debt (new property price + existing mortgage + fees).
  2. Borrowers make interest-only payments until they sell their current home.
  3. The sale proceeds pay off the loan, converting it into a regular mortgage.

Example:

Sarah and Tom want to buy their dream home but haven’t sold their current property yet. They take out a bridging loan to cover the new home’s purchase price while their existing home is on the market. During this period, they make interest-only payments on the loan. After selling their old home, they use the proceeds to repay the bridging loan, transitioning to a standard mortgage on their new home.

When do you need it?

  • Buying before selling.
  • Avoiding renting between moves.
  • Renovating before selling.
  • Buying at auction.

What are the benefits?

  • Reduces stress by removing time pressure.
  • Helps secure a new property faster.
  • Flexible repayment options.
  • Saves on rental costs.

What are the risks?

  • Higher interest rates and fees.
  • Must sell within a set period.
  • Market fluctuations may affect resale value.

Who should consider it?

  • Homeowners upsizing or downsizing.
  • Property investors.
  • Anyone needing a smooth transition between homes.

What are the available options?

  1. Standard Bridging Loan – Open or closed, usually interest-only.
  2. Deposit Bridging Loan – Covers a deposit before selling a property.
  3. Capitalised Interest Loan – Adds interest to the loan instead of monthly payments.
  4. Business Bridging Loan – For investors needing fast funds.
  5. Construction Bridging Loan – For building a home while waiting to sell.

How to apply?

  1. Have an exit strategy – Plan for repaying the loan.
  2. Show financial stability – Prove you can cover interest payments.
  3. Get a property valuation – Lenders assess property value.

Is it right for me?

Bridging finance can be helpful but requires careful planning. A mortgage broker can help you find the best loan for your needs.

The Team at The Accountants and The Finance Brokers are here to help you navigate your cash flow requirements in your business. We offer complimentary cash flow reviews and assist you in understanding your finance needs.