Avoid ever needing to ask ‘How does a bridging loan work?’

A bridging loan is designed to tide you over between the sale of your existing property and the purchase of the new home. But property expert Rob Klaric says you must try to avoid one.....

Residz Team 3 min read

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Right now some vendors are suspended in a scary situation. Their home is not selling quickly enough to allow them to meet the settlement date on their new property.

In the three months to July 2022, the median days on market was 32, up from around 20 days less than a year earlier. A drawn-out sales campaign for an existing property bumping up against the settlement deadline for a new property is largely why bridging loans exist, but here we share advice from a property expert who says it’s critically important you try to avoid this scenario.

Tides you over when property hasn’t sold

A bridging loan is designed to tide you over between the sale of your existing property and the purchase of the new home.

The Home Loan Experts say that with a bridging loan, “you can avoid the stress of matching up settlement dates, move quickly to buy your new home and give yourself more time to sell your existing property.”

However, that’s not to say you should do this, as we’ll see.

How does a bridging loan work?

Bridging loans are sometimes termed a ‘relocation loan.’ They are interest-only and short-term, and should be saved for a worst-case scenario.

Residz brand ambassador Rob Klaric writes in his book “Secrets of the Property Expert” that a bridging loan works like this:

Rob Klaric says that, as bridging loans are interest only, during the bridging period:

So why is a bridging loan not recommended?

A bridging loan has interest rates that are comparable with ordinary mortgages, but Rob Klaric warns in his book not to forget you are still ‘essentially carrying two mortgages’ and during the bridging period you are not paying anything off.

“The longer you take to sell your existing home, the higher your interest bill, and hence your new mortgage, will be,” he says.

Always sell before you buy

Bridging loans should be seen as a last resort, when you are forced to settle on your new home before your own home has sold.

Rob Klaric makes his views plain in “Secrets of the Property Expert”:

“It’s critically important that you sell before you buy; yet another example of a situation where your head must rule your heart,” he says.


He explains how vendors may overestimate the value of their home then start to look for a new house before they’ve put their own place on the market.

This leads to a dangerous scenario - “the very worst risk” - says Rob.

“You risk selling for a much lower price than you’d envisaged,” he says, “either because you’ve placed too high a value on your house in your own mind, or because you’ve had to drop the price to effect a quick sale, in order to settle on the new house.”

Don’t go house hunting too early

Rob recommends not tempting yourself into this situation by looking at houses for sale too early.

“Make your decision to sell your house, get it on the market, exchange contracts, and then you know exactly where you stand financially,” he says.

This puts you in the less stressful position of being able to throw yourself into your new house search, confident that you’re in a position to buy as soon as you find the right property, he says.

Residz can help buyers and sellers reduce the stress:

Photo by Alex Azabache on Unsplash