Pros and cons of a bridging loan

Bridging loans for Australian property buyers. Learn pros, cons, rates, and strategies for buying before selling in 2025's competitive market

Finding your dream home should be exciting, not stressful. Yet for countless Australian property buyers, the perfect opportunity slips away because they’re trapped in the classic catch-22: needing to sell their current property before they can buy their next one. In 2025’s competitive property market, where supply shortages and rising demand create fierce bidding wars, this limitation can mean missing out on the ideal home or being forced into rushed decisions.

If you’ve found the perfect property but haven’t yet sold your current home, you might be wondering how to make the move without missing out. That’s where a bridging loan can come in. Designed to help you buy first and sell later, a bridging loan provides short-term finance that covers the gap between the purchase of your new home and the sale of your existing one.

With the Reserve Bank of Australia implementing two rate cuts in early 2025 and further reductions expected throughout the year, property markets are experiencing renewed buyer confidence. Property prices continue rising across most Australian capital cities, making timing increasingly critical for buyers seeking flexibility in their property transitions.

What are bridging loans and how do they work?

A bridging loan is essentially a short-term financial bridge between two major property transactions. These specialised home loans allow you to access the equity in your current property to fund the purchase of a new home before your existing property sells. Think of it as temporary finance that keeps you moving forward while your property sale catches up.

Loan structure and terms

Bridging loans typically operate for terms of 6 to 12 months, giving you breathing space to sell your current home without the pressure of rushed timelines. The structure usually involves two loan accounts: the bridging loan itself (which is paid off when your current property sells) and the ‘end debt’ (which converts to your ongoing mortgage after settlement).

Current rates and borrowing capacity

Current bridging loan interest rates in Australia typically start from around 6.00% per annum, though some lenders may offer rates in the 5% range for borrowers with strong equity positions. However, rates can be higher than standard home loans - for example, if a regular home loan is 5.00% per annum, bridging loan rates might sit around 8-9% per annum, reflecting the short-term nature and higher risk profile of this finance type.

Most lenders will allow you to borrow up to 80% of your new property’s value, using your existing home as security. The process typically involves property valuations for both homes and assessment of your capacity to service the combined debt during the bridging period. Many bridging loans offer interest-only repayments or even capitalised interest, meaning you might not need to make any repayments until your current property sells.

The compelling advantages of bridging finance

Maximum flexibility and timing control

The biggest benefit of a bridging loan is flexibility. It allows you to secure your next home without waiting for your current one to sell. This advantage becomes particularly valuable in competitive property markets where good properties move quickly and vendors prefer unconditional offers.

Bridging finance means you can avoid renting in between moves. You won’t need to pack up twice, juggle storage costs, or worry about timing your move to the day. Instead, you can focus on settling into your new home while selling your old one on your terms.

Avoiding costly displacement

Research reveals the financial impact of selling first. On average, homeowners spend an additional $8,300 on relocation expenses when they sell first, while 52% of homeowners had to find temporary living arrangements while waiting to buy after selling first. These statistics highlight the real-world value of bridging finance in avoiding displacement and associated costs.

Manageable repayment structures

Another advantage is that many bridging loans offer interest-only repayments during the bridging period, helping to reduce financial pressure. In some cases, lenders will even capitalise the interest, meaning no repayments are required at all until after your current property has sold. This structure can be especially useful for families balancing school zones, job changes, or lifestyle upgrades while managing two mortgages in the short term.

Property preparation opportunities

If your existing home needs a quick refresh before going to market, whether it’s landscaping, minor renovations, or staging, having access to funds through bridging finance can help you boost its sale price without dipping into your savings. This preparation time often results in better sale outcomes and can offset some of the bridging loan costs.

Understanding the risks and considerations

Increased debt exposure

The main downside of a bridging loan is the increased level of short-term debt. For a period of time, usually between six to twelve months, you’ll owe the combined value of both properties. Even if interest is capitalised, you’re still accruing interest on the full balance, and the longer your home takes to sell, the more interest you’ll pay.

Higher borrowing costs

Bridging loans also tend to have slightly higher interest rates than standard home loans. Depending on the lender, the terms may include more conservative lending ratios or require strong equity in your existing home. This can make bridging finance harder to access for buyers with smaller deposits or less borrowing capacity.

Market timing pressures

Another risk is timing. If the market softens or your property doesn’t sell within the bridging period, you may need to renegotiate with your lender or begin making full repayments on a much larger loan than originally intended. For that reason, it’s important to enter a bridging loan with a clear exit strategy, ideally having your current home listed for sale or under contract before settlement on the new home.

Lender requirements and approval complexity

Some lenders may also require you to have a confirmed contract of sale for the new property before approving the bridging loan. Documentation requirements can vary, and a pre-approval doesn’t guarantee unconditional approval until your full application is assessed.

Canstar’s Data Insights Director Sally Tindall offers this caution: bridging loans could be considered by some people when transitioning from one home to another but should be approached with a healthy dose of caution, since you’re essentially paying interest on two loans at once.

Current market conditions favouring bridging finance in 2025

Interest rate environment

The Australian property market in 2025 presents several factors that make bridging loans particularly relevant for strategic buyers. Following two rate cuts in early 2025, interest rates are expected to continue falling throughout the year. Economists from Australia’s largest banks anticipate multiple cuts, potentially bringing the cash rate to 3.35% by year’s end.

This downward trend in interest rates supports borrowing capacity and has already begun stimulating increased buyer demand. As competition intensifies and property prices continue rising in most capital cities, the ability to make unconditional offers through bridging finance becomes increasingly valuable.

Supply constraints driving competition

Housing supply shortages remain a critical factor across Australian markets. With dwelling approvals running well below the National Cabinet’s target of 240,000 new homes annually, and construction costs remaining elevated, the limited availability of quality properties means buyers who can act quickly often secure better opportunities.

Property market forecasts suggest continued price growth of 4-6% nationally, with some regions expecting stronger performance. KPMG’s latest analysis shows house prices rising by 3.3% and units by 4.6% in 2025, with stronger increases expected in 2026 as rate cuts take full effect.

Eligibility requirements and practical considerations

Equity and security requirements

Lenders typically require substantial equity in your current home when assessing bridging loan applications. Most require around 50% equity, though some may lend with as little as 20% equity (80% loan-to-value ratio). This equity provides security for the additional borrowing and demonstrates your financial stability.

Property marketability assessment

High likelihood that your current property will sell during the bridging loan term represents another crucial requirement. Some lenders won’t provide bridging finance for properties in remote areas or unique properties that might prove difficult to sell. Urban properties in established markets generally receive more favourable consideration.

Serviceability and documentation

You’ll need to demonstrate capacity to service at least interest-only payments on your peak debt (existing mortgage plus bridging finance) until your current home sells. Some lenders require cash savings equivalent to expected interest charges as additional security.

The application process typically requires standard home loan documentation: income verification, asset and liability statements, property valuations, and credit history checks. However, bridging loan approvals can often be processed more quickly than standard mortgages, sometimes within days rather than weeks.

Timing considerations

Always check with your lender to make sure they’re going to give you adequate time for you to sell your home. Some lenders might give you a really good rate, but then say ‘we want our money back in three or six months’. This timing consideration proves crucial for successful bridging finance outcomes.

Is bridging finance right for you?

Assessing your suitability

Bridging loans can be a smart strategy for homeowners looking to upsize, downsize or relocate – especially in a competitive property market. If you have strong equity, a stable income, and a solid plan to sell your current home within a defined timeframe, this type of finance can provide the breathing room to buy with confidence.

But they’re not suitable for everyone. The key is to weigh the convenience of buying first against the cost of holding two properties, however temporarily. What factors should you evaluate before proceeding?

Financial readiness checklist

Financial readiness involves more than just meeting lending criteria. Evaluate your cash flow capacity to manage potential interest payments, factor in selling costs and timing, and ensure you have contingency plans if your property takes longer to sell than anticipated.

Market timing also plays a crucial role in decision-making. In rising markets with strong demand, bridging finance can help secure properties that might otherwise become unaffordable. However, in softening markets, the risks of extended selling periods and potential price reductions require careful evaluation.

Alternative strategies worth exploring

Alternative strategies deserve exploration before committing to bridging finance. These might include:

• Negotiating extended settlement periods on purchases
• Arranging vendor finance or rent-back agreements
• Seeking properties with longer settlement terms
• Timing your property search with seasonal market patterns

Each situation presents unique circumstances that may favour different approaches.

The importance of expert guidance

Mortgage broker expertise

Navigating bridging finance successfully often requires professional guidance. Mortgage brokers specialising in bridging loans understand the varying lender criteria, can access multiple funding sources, and help structure deals that align with your specific circumstances and timeline.

Before you make any decisions, speak to a mortgage broker or lender who can help you compare your options, assess your eligibility, and help find a solution based on your personal circumstances. Professional advisers can also assist with timing strategies, documentation preparation, and coordinating settlements to minimise risks.

Market and legal support

Property market knowledge proves equally valuable. Real estate agents familiar with your local market can provide realistic selling timeframes and pricing guidance, helping you make informed decisions about bridging loan terms and exit strategies.

Legal advice ensures you understand all contractual obligations and timing requirements. Solicitors experienced in property transactions can structure contracts and settlement dates to optimise your bridging finance strategy.

Strategic property transitions in 2025

Bridging loans represent a powerful tool for navigating Australia’s dynamic property market in 2025. With interest rates declining, property values rising, and supply constraints creating competitive conditions, the flexibility to buy before selling offers significant strategic advantages for well-prepared buyers.

The decision ultimately depends on your financial strength, risk tolerance, and specific circumstances. Strong equity positions, stable incomes, and realistic selling strategies create ideal conditions for successful bridging finance outcomes. However, the increased debt burden and timing pressures require careful evaluation and professional guidance.

As property markets continue evolving throughout 2025, buyers who understand their options and prepare thoroughly often achieve better outcomes than those forced into rushed decisions. Whether bridging finance suits your situation depends on weighing flexibility benefits against additional costs and ensuring you have robust plans for managing both transactions successfully.

For buyers exploring bridging finance options, start by consulting qualified professionals who can assess your eligibility, explain current market opportunities, and help develop strategies aligned with your goals and timeline.

Further questions

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.