Bridging Loans: Buy Your Next Home Before You Sell

You've found the right property, but your current home hasn't sold yet.

Bridging finance covers the gap between buying your next home and selling your current one. It's a short term loan that uses the equity in your existing property as security, giving you up to 12 months to complete the sale without rushing or accepting a lower price. For ADF members who may face posting timelines or want to avoid temporary accommodation with family, this option removes the pressure to sell before you're ready.

How Bridging Finance Works for Defence Members

A bridging loan adds to your existing mortgage temporarily. The lender uses both your current property and the new property as security, which means you're effectively borrowing against two properties at once. Your loan to value ratio (LVR) across both properties typically can't exceed 80% without additional costs, though some lenders push this higher depending on your circumstances.

Consider a scenario where you own a home valued at $650,000 with $300,000 remaining on the mortgage. You want to purchase a new home for $750,000. The lender assesses your total borrowing position: $300,000 existing debt plus $750,000 new purchase equals $1,050,000 borrowed against combined property values of $1,400,000. That's a 75% LVR, which sits within standard lending parameters.

The interest on the bridging portion typically gets capitalised, meaning it's added to the loan rather than paid monthly. This keeps your cash flow intact while you're managing two properties. Once your original home sells, the sale proceeds pay out the bridging component and you're left with a standard mortgage on your new property.

When the Numbers Make Sense

Your borrowing capacity determines whether bridging finance works for your situation. Lenders assess whether you can service both loans simultaneously, even though that's not your long-term plan. They look at your income, existing commitments, and the rental potential of your current property if it doesn't sell within the bridging period.

In our experience working with ADF members across different postings, the calculation often works in your favour due to stable employment and regular income. A member earning $95,000 annually with minimal other debt can typically support temporary dual borrowing, particularly when the existing property could generate rental income as a fallback.

The bridging loan term usually runs for 6 to 12 months. Most sales complete well within this window, but the lender wants to see a clear exit strategy before approval. That means having your current property listed with a realistic price, or demonstrating you have the income to convert to an investment loan if the property doesn't sell.

Costs You Need to Account For

Bridging finance costs more than standard home lending. The interest rate typically runs 1% to 2% higher than a variable interest rate on a conventional mortgage. Some lenders charge a bridging loan application fee and additional monthly fees during the bridging period.

The real cost sits in the capitalised interest. If you're borrowing an additional $400,000 for six months at 7.5%, you're adding roughly $15,000 to your total debt before your original property sells. Factor in conveyancing, agent fees, and potential holding costs like rates and insurance, and the total outlay can reach $25,000 to $30,000 for that transition period.

These figures matter when you're deciding whether to accept an offer on your current property or hold out for better terms. If selling now means accepting $620,000 instead of waiting three months for $650,000, the $30,000 difference covers your bridging costs with room to spare. If the gap is smaller, or the market is softening, the calculation shifts.

Managing the Risk of Two Properties

The primary risk is that your original property doesn't sell within the bridging period, leaving you with two mortgages and no clear timeline for resolution. The lender will require an exit strategy at that point, which usually means converting your old home to an investment property or extending the bridging arrangement at additional cost.

As an example, a member purchasing in a regional area while their current property sits in a capital city faces different timing risks than someone moving between similar markets. A Darwin property might take longer to sell than a Sydney one, or the reverse could be true depending on current market conditions. The key is working with an agent who gives you realistic timeframes, not optimistic ones, and pricing accordingly from the start.

Defence-specific lenders understand posting cycles and relocation pressures. They're generally more willing to work through bridging scenarios because they see these situations regularly. That doesn't reduce the risk, but it does mean you're less likely to face a lender who treats your situation as unusual or high-risk by default.

Alternatives Worth Considering

Some buyers prefer to secure finance pre-approval and sell their current home first, then rent short-term while they find the right property. This removes the dual-loan risk but adds the inconvenience of temporary accommodation and potentially missing the property you want while waiting for settlement.

Another option is a sale subject to finance and extended settlement, where you negotiate a longer settlement period (90 to 120 days instead of the standard 30 to 60) to give your property time to sell. This doesn't eliminate the need for bridging finance, but it can reduce the bridging period substantially.

For members with sufficient equity, releasing funds through refinancing before you buy can provide the deposit for your next property without needing bridging finance at all. If you can access $150,000 in equity without exceeding 80% LVR on your current home, you avoid the bridging interest rate and fees entirely. The trade-off is a larger ongoing mortgage until your original property sells.

What Lenders Look For in Applications

Bridging loan approval depends on equity position, income stability, and a credible exit strategy. The lender wants to see you've listed the property at a price that reflects recent comparable sales, not what you hope to achieve. They'll often require a valuation on both properties and evidence that you've engaged an agent.

Your deposit for the new property usually comes from equity in the existing one, which means you're not bringing cash to settlement. The lender assesses the bridging loan amount based on the combined security and your ability to service the debt. Defence income is viewed favourably here due to consistency, though allowances and other variable components may be discounted in serviceability calculations.

Fast approval is possible when your financial position is clear and both properties are in mainstream markets. Applications can be assessed in days rather than weeks if you provide complete information upfront, which matters when you're competing for a property or working to auction deadlines.

Call one of our team or book an appointment at a time that works for you. We'll assess your equity position, run the numbers on your specific scenario, and confirm whether bridging finance gives you the flexibility you need without unnecessary financial strain.

Frequently Asked Questions