Understanding the Basics of Bridging Loans

What a Bridging Loan Actually Does

A bridging loan lets you buy your next property before you've sold your current one. The lender uses both properties as security and advances you the funds to purchase the new place while you still own the old one. Once your existing property sells, you repay the bridging portion and revert to a standard home loan on the new property.

For concreters running your own business, timing can work against you. You find the right property, but your current place hasn't sold yet. You can't make settlement conditional on a sale that might not happen for months, and the seller won't wait around. Bridging finance gives you the cash to settle on the new property and up to 12 months to sell the old one without the pressure of a rushed sale at the wrong price.

The lender calculates how much you can borrow by assessing the combined value of both properties. They'll typically lend up to 80% of the combined property values, though some lenders go higher depending on your circumstances. Your existing loan balance gets factored in, and the difference determines how much bridging finance you can access. If you're buying a home while expanding your property portfolio, the calculation works differently because you're keeping both properties rather than selling one.

How Lenders Calculate Your Bridging Loan Amount

Lenders use your existing property's current market value, not what you paid for it years ago. They'll order a valuation and base their lending on that figure. If you own a property valued at $650,000 with a $320,000 loan remaining, and you're buying a new property for $720,000, the lender looks at the total security of $1,370,000. At 80% loan to value ratio, they'll lend up to $1,096,000. Subtract your existing $320,000 loan, and you have access to $776,000, which covers the $720,000 purchase plus costs.

The loan to value ratio matters because going above 80% typically triggers lenders mortgage insurance, which adds thousands to your costs. Some lenders offer low deposit loans for tradies that can stretch to 90% or even 95% LVR on bridging finance, but the insurance premium gets capitalised into the loan, increasing what you owe during the bridging period.

Your income still needs to service both loans during the bridging period. Lenders assess whether you can afford the repayments on the new loan plus the interest on the bridging portion before your old property sells. For self-employed concreters, this means showing consistent income through tax returns or business financials. If you're using self-employed loans for tradies structures, the lender will want to see at least two years of financial history to confirm your income can handle the temporary increase in debt.

Bridging Finance Costs and How Interest Gets Charged

Interest on the bridging portion is usually capitalised, meaning it's added to your loan balance each month rather than paid out of your pocket. The interest rate on bridging finance typically sits 1% to 2% higher than standard variable rates. If the variable rate is 6.5%, expect the bridging rate to land around 7.5% to 8.5%. That rate applies only to the bridging portion, not your entire loan.

Consider a concreter who borrows an additional $400,000 in bridging finance at 8% for six months. The interest over that period is roughly $16,000, which gets added to the loan. Once the old property sells, that $400,000 plus the capitalised interest gets repaid from the sale proceeds, and you're left with a standard home loan on the new property.

Bridging loan fees include valuation costs for both properties, a bridging finance application fee that can range from $500 to $1,500, and sometimes a monthly service fee during the bridging period. Settlement costs apply to both the purchase of the new property and the eventual sale of the old one, including legal fees, agent commissions, and government charges. When you add it all up, expect to set aside $25,000 to $35,000 in total costs for a six-month bridging period, depending on your property values and loan amount.

The Bridging Period and Your Exit Strategy

Most bridging loans run for six months, with the option to extend to 12 months if needed. Lenders want a clear exit strategy before they approve the loan. That means listing your existing property for sale at a realistic price before or immediately after settlement on the new property. The lender may require proof that you've engaged a real estate agent and have a marketing plan in place.

If your property doesn't sell within the initial six-month term, you'll need to apply for an extension. Some lenders build a 12-month term into the initial approval, while others require a fresh assessment at the six-month mark. Extensions usually come with additional fees and a review of your financial position. If the market has shifted or your circumstances have changed, the lender may tighten conditions or decline the extension, forcing you to sell quickly or refinance the bridging loan with another lender.

The risk sits with you if the property takes longer to sell than expected. Interest keeps capitalising, your debt keeps growing, and lenders won't let the situation drag on indefinitely. Selling after buying works when you're confident the property will move within a reasonable timeframe and at a price that covers your costs. If you're in a slow market or the property needs work before it's saleable, bridging finance can turn into a financial crunch.

When Bridging Finance Makes Sense for Concreters

Bridging finance works when you've found the right property and your current place has solid equity and buyer appeal. You need enough equity to cover the deposit and costs on the new property without breaching 80% LVR, and your income needs to service both loans temporarily. If your existing property is already mortgaged close to its value, or if your income is variable and lenders are cautious, bridging loans for tradies become harder to secure.

In our experience, concreters who've owned their property for several years and built up equity have the best shot at smooth bridging finance approval. The property you're selling needs to be in a suburb with regular turnover, not a niche market where sales are slow. If you're moving from a standard family home in an established suburb to another similar property, lenders see that as lower risk than moving from a unique property in a thinly traded area.

Alternatives to bridging finance include selling first and renting temporarily, negotiating a longer settlement period on the new property, or using a deposit bond to secure the purchase while you sell. Each option has trade-offs. Renting means moving twice and storing your belongings. A longer settlement period only works if the seller agrees, and many won't. Deposit bonds cost less than bridging finance but still require you to sell before final settlement. For concreters juggling work and family, buying your next home without the upheaval of temporary accommodation can justify the cost of bridging finance.

Bridging Loan Approval and What Lenders Look For

Lenders assess your bridging loan application the same way they would any home loan, then add an extra layer for the bridging component. They'll look at your income, existing debts, credit history, and the properties involved. For self-employed concreters, that means providing recent tax returns, business financials, and proof of ongoing contracts or work. If your income has dropped recently or you've taken on new business debt, that can stall approval.

The valuation on both properties matters more than usual. If the lender's valuer comes in below your expected sale price on the existing property, your borrowing capacity drops. If the valuation on the new property comes in below the purchase price, you'll need to find extra cash to cover the gap. Ordering a pre-purchase property report before you commit can help avoid surprises, but the lender will still do their own valuation.

Fast approval is possible if your financials are current and both properties are straightforward. Some lenders can turn around a bridging loan application in a week, while others take three to four weeks depending on their workload and how quickly you provide supporting documents. If you're buying at auction or working with a short settlement period, getting loan pre-approval before you start looking gives you the confidence to act when the right property comes up.

Call one of our team or book an appointment at a time that works for you. We'll assess both properties, work through the numbers, and connect you with lenders who understand how concreting businesses operate and what bridging finance actually costs in your situation.

Frequently Asked Questions