Bridging finance for upgraders: a practical guide

Bridging finance exists for one specific problem: you have found the next property before you have sold your current one. For upgraders, that is the rule not the exception, and bridging lets you settle on the new place without a fire-sale on the old one.

How Australian bridging actually works

The standard product is a “closed-end” bridging loan. The lender calculates peak debt (existing loan + new purchase price + costs) and end debt (the residual you will owe after the old property sells). During the bridging period - usually six to twelve months - you pay interest on the whole peak debt, often capitalised rather than serviced monthly.

Westpac, St George, CBA and Bankwest are the main big-four players. Adelaide Bank and Suncorp also have workable products. Rates sit about 20-40 bps above standard variable, and most lenders require the old property to be genuinely on the market before they release funds on the new one.

The two ways this goes wrong

First, the old property takes longer to sell than expected, and you exhaust the bridging window. Extending beyond 12 months is possible with most lenders but triggers a review and often a higher rate. We ask clients to assume 90 days on market as a planning number, not 30.

Second, the old property sells for less than the agent’s appraisal. Your end debt is higher than planned, and serviceability on that residual needs to work on its own. Before recommending bridging, we stress-test the plan against a sale 10% below appraisal.

When it beats the alternatives

The alternative to bridging is selling first, renting for three to six months, and buying later. That works for downsizers and for markets where stock is plentiful. In a tight market - Inner West Sydney or inner Melbourne, for instance - the cost of renting, moving twice, and competing blind for the next property often exceeds two months of bridging interest.

When it doesn’t

If your old property is genuinely hard to sell - oddly configured, near an overhead line, on a main road - bridging is a trap. You pay interest for 12 months and still end up discounting. Better to sell first and carry the inconvenience of renting.