When to Consider Bridging Loans Between Property Sales

Understanding Bridging Finance for Property Purchases

For academics looking to upgrade their property without the pressure of having to sell first, bridging loans offer a practical solution. This short term property finance allows you to buy before you sell, providing the flexibility to secure your dream home while managing the transition between properties.

A bridging loan is temporary finance that covers the period between purchasing a new property and selling your existing one. This bridging period typically ranges from 6 month bridging to 12 month bridging terms, giving you adequate time to sell your current home without rushing the process.

How Bridging Loans Work

When you apply for bridging finance, lenders assess both your current property and the new property you wish to purchase. The bridging loan amount is calculated based on the equity in your existing home and the value of your new purchase.

The process involves:

1. Submitting a bridging loan application with documentation for both properties
2. Lender assessment of your bridging loan security
3. Evaluation of your exit strategy for loan repayment
4. Bridging loan approval based on your loan to value ratio (LVR)
5. Bridging loan settlement allowing you to proceed with your purchase

Most bridging loans operate with interest capitalisation, meaning the interest accrues during the temporary finance period and is paid when you sell your existing property. This approach means you won't face additional monthly repayments during the bridging period.

Key Benefits of Bridging Loans

The bridging loan benefits for academics are considerable when managing property transitions:

• Time to find the right property: You can secure your new home when you find it, rather than missing opportunities
• Avoid selling first: No need to rush your current property sale or accept below-market offers
• Seamless property upgrade: Move directly from one home to another without temporary accommodation
• Auction finance capability: Bid confidently at auctions knowing your finance is arranged
• Buy dream home opportunities: Act quickly when the perfect property becomes available

Understanding Bridging Finance Costs

When considering bridging finance, it's important to understand the associated bridging finance costs. The bridging loan interest rate is typically higher than standard home loan rates due to the short term loan nature and increased risk for lenders.

Common bridging loan fees include:

• Application and establishment fees
• Valuation fees for both properties
• Legal and conveyancing costs
• Monthly or capitalised interest charges
• Break fees if you exit early
• Settlement costs

Most academics will see a variable interest rate applied to their bridge loan, though the exact rate depends on your bridging loan LVR and overall financial position. With access to loan options from banks and lenders across Australia, working with specialist brokers can help you identify appropriate interest rate discounts.

Bridging Loan Requirements and LVR

Lenders typically require a maximum combined loan to value ratio (LVR) of 80% across both properties. This means the total borrowing (including your existing mortgage and the bridging loan amount) shouldn't exceed 80% of the combined property values.

For academics with home loans for academics or those considering home loans for professors, some lenders offer favourable terms recognising the employment stability in the education sector.

Assessing Bridging Loan Risks

While bridging loans provide significant advantages, understanding the bridging loan risks is essential:

• Property market fluctuations: If property values decline, you may face challenges with your loan to value ratio
• Extended selling period: If your property doesn't sell within the bridging loan term, you may need bridging loan refinance options
• Higher interest costs: The longer your property remains unsold, the more interest accumulates
• Sale price concerns: Pressure to sell before the bridging period ends might affect your selling strategy

Your exit strategy is critical to bridging loan approval. Lenders need confidence that you can sell property exit successfully, typically requiring evidence of your current property's marketability and realistic sale price expectations.

Bridging Loan Alternatives

Before committing to bridging finance, consider these bridging loan alternative options:

• Selling your current property before purchasing (though this removes the buy before sell advantage)
• Extending settlement periods through exchange contract negotiations
• Using equity release or equity release loans for teachers
• Securing urgent finance through personal loans for deposit requirements
• Arranging family guarantees to increase borrowing capacity

Fast Approval for Time-Sensitive Purchases

Many academics need quick bridging finance when they've found their ideal property. The bridging finance application process can be completed relatively quickly, with some lenders offering fast approval within days when documentation is complete.

This speed is particularly valuable for auction finance situations or when competing in competitive purchase scenarios. Having getting loan pre-approval arranged beforehand can further accelerate the process.

Making Bridging Finance Work for You

Successful bridge loan buying requires careful planning. Consider listing your existing property for sale before or immediately after exchange contract on your new purchase. This ensures your property is actively marketed throughout the bridging period, reducing the risk of extended holding costs.

For academics looking to buy before you sell, understanding your borrowing capacity and realistic selling timeframes is essential. Working with finance professionals who understand the unique circumstances of educators can help identify suitable products and ensure your bridging loan repayment strategy is achievable.

If you're considering whether selling after buying makes sense for your circumstances, or need guidance on managing the temporary finance period effectively, professional advice is invaluable. Our team specialises in helping academics access appropriate finance solutions for property transitions.

Call one of our team or book an appointment at a time that works for you to discuss your bridging finance options and determine whether this approach suits your property upgrade plans.