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Buying Before You Sell: Bridging Finance and Simultaneous Settlement

7 min read · by Ugur, demir.loans

Most upsizers face the same chicken-and-egg problem. Sell first and you might be renting while you hunt. Buy first and you're carrying two properties. Neither is the only option. There are two well-worn ways to move from one home to the next without the gap, and the right one depends on how confident you are about your sale price and timing.

Option one: line up the settlements

Simultaneous settlement means your sale and your purchase settle on the same day. The proceeds from your current home pay out its loan and fund the rest of the new purchase in one go, so you never hold two properties. It's the cheapest path because there's no extra debt to carry. The catch is timing. Both contracts need settlement dates that line up, and the purchase still depends on your sale going through. If your buyer pulls out or delays, your purchase is exposed. It works best when your home is already sold, or under contract, before you commit to the next one.

Option two: bridging finance

A bridging loan lets you buy the new home before the old one sells. For a period, the lender funds both: your existing loan plus the full cost of the purchase. That combined figure is called the peak debt. Once your current home sells, the proceeds clear a large part of it and what's left becomes your ongoing home loan, called the end debt. The bridging period is commonly up to six months for an established home, and sometimes longer if you're building. Not every lender offers bridging finance, and the ones that do set quite different rules.

How lenders assess a bridging loan

The lender values both properties, because together they secure the peak debt. Most will only lend up to a set percentage of the combined value, so the equity in your current home does a lot of the work. Your ability to repay is usually assessed on the end debt, not the peak, because that's the loan you'll carry long term. During the bridging period, many lenders capitalise the interest on the bridging portion, which means it's added to the balance rather than paid monthly. That keeps cash flow manageable while you're selling, but it does increase the debt for every month the sale takes.

What it costs if the sale runs late

The real risk with bridging finance is time and price. Every extra month on the market adds more capitalised interest. If your home sells for less than you planned, the end debt is bigger than expected, and your repayments with it. If the bridging period runs out before you've sold, the lender may agree to an extension, adjust the terms or require the property to be sold. None of that is a reason to avoid bridging. It's a reason to plan the sale price conservatively and know what a slower sale would cost before you sign.

Using equity for the deposit

Even with simultaneous settlement, you usually need a deposit on the new home before your sale has settled. One common approach is releasing equity from your current home, through a top-up or a separate loan split, to fund that deposit. Another, in NSW, is using the deposit your own buyer has paid. That money is held in trust until settlement, and it can only be released toward your purchase if both you and your buyer agree to it in the sale contract. If your buyer won't agree, or the contract doesn't allow it, a deposit bond can fill the gap as a short-term solution. It's a guarantee issued in place of a cash deposit, usually for a fee, and it covers you until your sale settles and the cash is available. The vendor you're buying from does need to accept it. Which option fits depends on how much equity you have and how your contracts are worded.

Before you buy first, have these ready

Appraisals from more than one local agent, so your expected sale price is realistic rather than hopeful.
A payout figure for your current loan, including any break costs if part of it is fixed.
A clear number for how many months you could carry the bridging cost if the sale is slow.
Pre-approval for the bridging loan, or the end loan, before you bid or sign.
Settlement dates you can negotiate. A longer settlement on the purchase buys time to sell.
A conversation with your conveyancer about deposit release and how the two contracts fit together.

Questions, answered

Do I make repayments on both loans during the bridging period?

It depends on the lender. Many capitalise the interest on the bridging portion so you aren't paying it monthly, while repayments continue on the part that will become your end debt. I'll show you exactly how your lender treats it before you commit.

What if my home doesn't sell in time?

Talk to the lender early. Depending on the lender, the options can include an extension or revised terms, and in some cases the lender may require the property to be sold. Planning a conservative sale price and a realistic timeline up front is the best protection.

Is it better to buy first or sell first?

Selling first gives you certainty about your budget but can leave you renting or rushing. Buying first lets you take your time on the right home but adds cost and risk if the sale is slow. The right answer depends on your equity, your cash buffer and how the local market is moving.

Can my current lender do the bridging loan?

Sometimes. Not every lender offers bridging finance, and policies on the bridging period, peak debt limits and how interest is handled vary a lot. I compare the lenders on my panel that do offer it and match one to your situation.

Talk it through

General information only, so the next step is applying it to your numbers. Book a chat, email ugur@demir.loans or call 0495 000 228. Free, no obligation.

This article is general information only and doesn't take your objectives, financial situation or needs into account. Scheme rules, thresholds and fees change; check current figures before relying on them. No interest rates are quoted on this website.