When to Use a Bridging Loan for an Urgent Property Purchase

A bridging loan lets you buy your next home before your current one sells. For a community pharmacist with long shifts and a business to run, it can remove the pressure to accept a low offer just to meet a settlement date.

The trade-off is cost and risk. Bridging finance is short term, and you pay for that convenience. This article explains when it makes sense, how it works and what to check before you apply.

What Is a Bridging Loan and How Does It Work?

A bridging loan is a short term loan that covers the gap between buying a new property and selling your existing one. Many lenders set it up so you carry the old loan and the new purchase debt together until your sale settles.

The bridging period is usually measured in months, and lenders often offer terms such as 6 or 12 months. Terms and rules differ between lenders, so ask your broker what applies to your situation. Once your property sells, the sale proceeds repay the bridging debt, and what remains becomes your ongoing home loan.

Our Bridging Loans for Pharmacists page covers how we set these up.

When Does Buying Before Selling Make Sense?

Buying before selling makes sense when you have found a property you cannot afford to lose, and you have solid equity in your current home. It also suits you if your sale needs more time to reach a fair price.

Consider a pharmacist who finds a home close to their pharmacy. It is heading to auction in three weeks, and their current home has not been listed yet. Selling first would mean a rushed campaign. Buying first without finance would mean no way to settle.

In a scenario like this, a broker would look at the value of the current home, the existing loan and the likely price of the new one. A bridging loan could then cover the new purchase while the old home is sold in a proper campaign. Because auction purchases are not subject to finance and have no cooling-off period, get your bridging finance approved before you bid. Approval depends on the lender's valuation and your serviceability, and it is not guaranteed within a short timeframe. If you bid without approval and the finance falls through, you could lose your deposit or be in breach of contract.

If the sale settles inside the bridging period, the sale proceeds clear the bridging debt and the remaining loan is the new home loan. The outcome is a purchase made on their timeline, with the sale handled without panic. The cost is interest on both properties for a few months, so the numbers need to work before you bid.

If you are still weighing up the purchase itself, our Buying your next home page is a good starting point.

How Much Does Bridging Finance Cost?

Bridging finance costs include interest, lender fees and often valuation and legal costs. Interest is usually higher than on a standard home loan, so the longer the bridging period runs, the more it costs you.

Here is an illustrative example using a 6.75% p.a. rate. If the bridging debt is $400,000 for six months, interest-only repayments would be about $2,250 a month, or roughly $13,500 over the period. That sits on top of your existing home loan repayments. Actual rates and fees depend on your lender, your loan to value ratio and the security offered.

Some lenders let you capitalise interest, meaning it is added to the loan rather than paid monthly. That eases cash flow, but the debt grows, and you pay interest on that interest.

Use a repayment calculator to test your numbers, then ask your broker for the full fee schedule from each lender.

Why Your Exit Strategy Matters Most

Your exit strategy is the plan for repaying the bridging debt, and lenders will want to see it before they approve the loan. For most borrowers, the exit is the sale of the existing property.

The risk is that your property sells for less than expected, or takes longer than the bridging period. If that happens, you may carry two debts for longer, pay more interest, or have to accept a lower price. Before you apply, ask yourself what you would do if the sale took twice as long as planned. If you could not cover both sets of repayments, bridging may be too risky.

Pharmacy owners should also think about how business income is assessed. Lenders may look closely at your income and borrowing capacity when assessing a bridging loan application. Our Borrowing Capacity page explains how lenders view this.

What Are the Alternatives to a Bridging Loan?

Alternatives include releasing equity from your current home, selling first and renting, or negotiating a longer settlement on the purchase. Each one avoids carrying a short term bridging debt, but each has its own trade-off.

Equity release can provide a deposit for the new home without a bridging loan, though it increases your debt and still needs lender approval. Our Equity Release Loans for Pharmacists page explains the option. Selling first removes the risk of double debt, but you may need to move twice and could miss the home you want. A longer settlement can work if the seller agrees. At auction the settlement period is usually set by the seller in the contract and is rarely negotiable after the hammer falls, so check the terms before you bid.

Which option fits depends on your equity, your cash flow and how confident you are in the sale price.

How to Prepare a Bridging Loan Application

You prepare a bridging loan application by getting your current home valued, confirming your existing loan balance and speaking with a broker before you bid or sign. Doing this early gives you a realistic idea of how much you can borrow.

Pharmacists who own or part-own a pharmacy should have business financials ready, as lenders will want to see them. Employed pharmacists will usually need recent payslips and tax returns. Getting loan pre-approval first helps you act quickly when the right property appears, although approval conditions still apply.

If you are signing a contract, speak to your broker and solicitor first, because the timing of exchange of contracts and settlement affects how long the bridging period needs to be.

Talk to us about bridging finance before you bid. Call one of our team or book an appointment at a time that works for you, and we will run the numbers with you.

Frequently Asked Questions