When You Need to Buy Before You Sell
A bridging loan lets you buy a property before you've sold your current one. You borrow against the equity in your existing home to cover the deposit and purchase costs on the new place, then repay the bridge loan once your old property settles. The bridging period usually runs between three and twelve months, depending on how long your lender expects your sale to take.
Most carpenters we work with use bridging finance because auction properties don't wait for your sale to go through. If you've found the right place and it's going under the hammer, you either have the deposit ready on the day or you miss out. Bridging finance gives you that option without forcing a fire sale on your current home.
The loan structure typically works like this: your lender advances the funds to settle the new property, capitalises the interest during the bridging period, then refinances everything into one loan once your old place sells. You're paying interest on both properties during the overlap, but you're not making separate repayments until after settlement.
The LVR Calculation That Catches Most People Out
Lenders calculate your loan to value ratio across both properties combined. If your existing home is worth $600,000 with a $300,000 mortgage, and you're buying a $700,000 property, the lender adds both mortgages and compares them to both property values. That's $1 million in loans against $1.3 million in security, which puts you at roughly 77% LVR.
Most lenders cap bridging finance at 80% LVR across both properties. Go over that and you'll need to pay lenders mortgage insurance or put down a larger deposit. The calculation also assumes your current property will sell for its market value, which means you'll need a formal valuation upfront.
If you're planning to bid at auction, get your bridging loan approval sorted at least two weeks before auction day. That gives your broker time to organise the valuation, submit the application, and get formal approval in place. Turning up to an auction with conditional approval isn't enough because most auctions require unconditional contracts on the day.
What a Twelve Month Bridging Term Actually Costs
Bridging loan interest rates sit roughly 1% to 2% higher than standard variable rates. On a $400,000 bridge loan over twelve months, that's around $32,000 to $40,000 in capitalised interest, depending on the rate your lender offers. The interest gets added to your loan balance each month rather than being paid out of your pocket.
On top of the interest rate, you'll pay bridging loan fees that usually include an establishment fee, valuation costs for both properties, and legal fees for the additional loan documents. Budget another $2,000 to $4,000 for those costs. Some lenders also charge an exit fee when you repay the bridge loan, though that's less common now than it used to be.
The bridging period matters more than most borrowers realise. A six month bridge costs half the interest of a twelve month term, which is why lenders want to see a clear exit strategy before they approve your application. If your current property is in a slow market or needs renovation work before it can sell, expect the lender to extend the bridging term and price the risk accordingly.
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Auction Finance Without Cooling Off Periods
Auction purchases settle fast and don't come with cooling off periods. Once the hammer falls, you're locked into an unconditional contract with settlement typically due in 30 to 45 days. That's why bridging finance applications need formal approval before you bid, not conditional approval that still requires valuation or income verification.
Consider a carpenter buying in a suburb where auction clearance rates are high and stock is limited. You've spotted a property that suits your needs, but it's scheduled for auction in ten days. Your current home is worth enough to support the bridge loan, but you haven't started the application process yet. By the time you get a valuation booked, submit your paperwork, and wait for assessment, the auction has already happened. You either miss out or you bid without approval and hope the lender comes through, which is a risk no one should take.
The alternative is to get your bridging loan approval sorted before you start looking at auction properties. That means organising valuations on your current home, confirming your borrowing capacity with your broker, and having formal approval ready to go. You'll know exactly how much you can bid, and you'll be able to exchange contracts on auction day without scrambling to finalise finance.
The Exit Strategy Lenders Actually Want to See
Every bridging loan application requires a documented exit strategy. That's the plan for how you'll repay the bridge loan, and it needs to be specific enough that the lender believes it will happen within the bridging term. Saying you'll sell your old property isn't enough. The lender wants to know whether the property is tenanted, whether it needs work before listing, and what the expected sale price will be based on recent comparable sales.
If your current home is tenanted and the lease doesn't expire for another eight months, your exit strategy needs to account for that delay. If the property needs minor renovation work to achieve market value, your timeline needs to include the cost and duration of those works. Lenders won't approve a six month bridge if your exit strategy realistically takes nine months to execute.
In our experience, the cleanest exit strategy is an untenanted property in good condition that can be listed immediately after your new purchase settles. That gives you the shortest bridging period, the lowest interest costs, and the highest chance of approval. If your situation is more complex, talk to your broker before you apply so the exit strategy is written in a way that makes sense to the lender's credit team.
Bridging Finance and Self Employed Income
If you're self employed as a carpenter, your bridging loan application will need the same income documentation as any other home loan. That usually means two years of tax returns, two years of financial statements, and a notice of assessment from the ATO. Some lenders will accept twelve months of financials if your income is strong and consistent, but that's the exception rather than the rule.
The lender is assessing whether you can service both mortgages during the bridging period, even though the interest is being capitalised. They'll calculate your repayment capacity as if you were making full principal and interest repayments on both loans, then confirm you can still afford your living expenses and any business costs. If you're running a labour hire business or subcontracting through your own ABN, make sure your income is clearly separated from business expenses on your tax return.
Self employed income can also affect your bridging loan refinance once the old property sells. If your income has dropped since the original approval, the lender might reassess your capacity before rolling everything into one loan. That's rare, but it's worth keeping in mind if you're planning to take time off between jobs or reduce your hours during the bridging period.
What Not to Do When Using Bridging Finance at Auction
Don't bid at auction without formal written approval that confirms your bridging loan is ready to settle. Conditional approval means the lender still needs to verify something, and that something could be the valuation on your current property, the sale contract for the new property, or final income documents. Any one of those conditions could derail your settlement if the lender doesn't like what they see.
Don't assume your current property will sell within three months unless your agent has evidence to support that timeline. Bridging finance costs add up quickly, and an optimistic sale timeline can leave you paying interest for longer than you planned. If your property is in an area with longer selling periods, factor that into your bridging term and make sure the loan is structured to cover the realistic timeframe.
Don't ignore the combined LVR calculation when you're working out how much you can bid. If your equity isn't sufficient to keep the combined loan under 80% LVR, you'll either need to increase your deposit or accept that lenders mortgage insurance will be part of the deal. Running those numbers before auction day means you know your limit and you're not guessing when the bidding starts.
If you're looking at auction properties and you need bridging finance to make it work, start the conversation with your broker now rather than the week before the hammer falls. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How long does a bridging loan approval take?
A bridging loan application typically takes one to two weeks from submission to formal approval, depending on how quickly valuations are completed and whether your income documentation is ready. Get started at least two weeks before any auction date to avoid missing out.
Can I use bridging finance if I'm self employed as a carpenter?
Yes, but you'll need two years of tax returns and financial statements to prove your income, just like any other home loan. Some lenders will accept twelve months of financials if your income is strong, but most require the full two years.
What happens if my old property doesn't sell during the bridging period?
If your property hasn't sold by the end of the bridging term, you'll need to extend the loan or refinance into a longer term product. Lenders typically allow extensions, but they'll reassess your capacity to service both loans and may adjust the interest rate.
Do I need to make repayments during the bridging period?
Most bridging loans capitalise the interest, which means it's added to your loan balance each month rather than requiring separate repayments. You'll still need to keep making repayments on your existing mortgage until that property sells.
What is the maximum LVR for bridging finance?
Most lenders cap bridging finance at 80% LVR across both properties combined. If your combined loan amount exceeds 80% of the combined property values, you'll need to pay lenders mortgage insurance or increase your deposit.
