Moving house
Bridging finance NZ: buy before you sell
Bridging finance covers the gap when you buy your next home before the sale of your current one has settled. It solves a timing problem, but it comes with real risk if the sale takes longer or sells for less. For a dollar example of a four-month bridge, see the bridging loan cost worked example.
By Yatin Kainth, Financial Adviser FSP1007497. Last reviewed
Bridging finance is short-term lending that lets you buy a new home before your existing one sells. The bank lends against both properties for a limited time, then the sale proceeds pay the bridge off. It suits people with solid equity and a realistic sale price, and it’s riskier when the old home isn’t sold yet. Talk to your lawyer about the settlement dates on both properties before you commit.
What’s bridging finance and how does bridging finance work in NZ?
For a while you own two homes. The bank lends enough to settle the new purchase, secured over both properties. When your old home sells, the proceeds repay the bridging loan and you’re left with the mortgage you planned on the new home.
During the bridge you’re carrying the costs of both properties: two lots of rates, insurance and interest. Some lenders let the bridging interest add to the loan instead of paying it monthly (called capitalising it), which helps cash flow but grows the balance. For the interest cost in dollars, see the bridging loan cost worked example.
What’s the difference between open and closed bridging?
| Closed bridge | Open bridge | |
|---|---|---|
| Your current home | Sold unconditionally, waiting to settle | Not sold yet |
| Risk | Lower, because the sale price and date are known | Higher, because price and timing are unknown |
| Lender appetite | More lenders will consider it | Fewer lenders, and they’ll want strong equity and a sale plan |
| Usual length | Until your sale settles, often weeks | A set limit, usually a few months, agreed up front |
Who is bridging finance right for?
- Upsizers and downsizers who’ve found the right home and can’t wait for their own sale to settle.
- People whose sale is unconditional but settles after the purchase. This is the simplest case.
- Buyers at auction, where the offer has to be unconditional on the day. See auction, tender or multi-offer.
- Owners with plenty of equity, so the combined debt stays comfortable even if the sale is slow.
It’s a poor fit if your equity is thin, your income only just covers the end loan, or you need a top price on your current home to make the numbers work.
How do NZ lenders assess a bridge?
- Peak debt: the total you’ll owe while you own both homes, compared with the combined value.
- End debt: what’s left after the sale, which you must be able to afford on your income at the bank’s test rate.
- A realistic sale price, often backed by an appraisal or valuation, and a time limit on the bridge.
- How interest will be paid during the bridge, either from your income or capitalised onto the loan.
- Your exit plan if the sale takes longer, such as dropping the price or switching to a rental plan.
What does a bridge look like in numbers? (worked example)
These numbers are invented to show the maths. They aren’t a quote, and sale costs vary.
Mere and Tom own a home worth about $900,000 with $300,000 owing. They buy a new home for $1,200,000 before theirs has sold.
| Item | Amount |
|---|---|
| Existing loan | $300,000 |
| Borrowed to buy the new home | $1,200,000 |
| Peak debt | $1,500,000 |
| Combined value of both homes | $2,100,000 (peak LVR about 71%) |
| Sale price, less $30,000 agent and legal costs | $870,000 |
| End debt after sale | $630,000 on a $1,200,000 home (about 53%) |
Now say the old home only sells for $820,000. After costs they get $790,000, and the end debt is $710,000. That’s $80,000 more than planned, and a few extra months of interest on both properties on top. The bank wants to know they can afford that version too, which is why I always run a lower sale price as well as the hoped-for one.
What are the risks of bridging finance?
The biggest risk is selling for less, or later, than you hoped. Every extra month costs interest, and a lower price means a bigger loan left on the new home. I suggest building in a buffer on the sale price and talking to your agent about timing before you commit.
Break fees can bite too. If your current loan is fixed and gets repaid when you sell, the bank may charge a fee. See how mortgage break fees work. Sometimes the loan can be moved to the new property instead, which avoids the fee.
How much does bridging finance cost?
Bridging finance in NZ is usually charged at a floating rate, so the cost can move while the bridge runs. To see the interest bill for a four-month bridge in dollars, and what a slower or cheaper sale does to it, read how much a bridging loan costs: a worked example. The rate is only part of it. While the bridge runs you’re paying for two homes, and the costs land in a short window, so it helps to list them before you commit.
| Cost | What it is | How to manage it |
|---|---|---|
| Bridging interest | Interest on the extra borrowing until your sale settles, usually at a floating rate | Keep the bridge as short as you can, and ask whether it can be capitalised |
| Holding costs | Rates, insurance, power and upkeep on both homes | Budget for at least a few months more than you expect |
| Lender fees | Some lenders charge an establishment fee for the bridge | Ask for all fees in writing and compare lenders |
| Valuations | The lender may want a valuation on one or both homes | Order early so it doesn’t hold up settlement |
| Legal fees | Your lawyer handles two transactions and extra security documents | Get a quote that covers the bridge, not just the purchase |
| Break fees | If a fixed loan is repaid early when you sell | Check whether the loan can move to the new home instead |
None of these are unusual on their own. The risk is that they stack up if the sale drags on, which is why the length of the bridge matters more than the rate.
What if I keep my old home as a rental?
Some people start with a bridge and end up keeping the old home as a rental. That can work, but the lender then assesses you as an investor, and investment property has its own deposit rules and affordability tests. The end debt is also much bigger than planned, because no sale proceeds come in. If this is a real option for you, tell the lender at the start so the structure suits both outcomes. See property investment loans.
What are the alternatives to bridging finance?
| Option | How it helps | Trade-off |
|---|---|---|
| Sell first, then buy | No double debt, and you know your budget exactly | You may need to rent or move twice |
| Offer subject to sale | Your purchase depends on your home selling | Sellers often prefer other offers, and many add a cash-out clause |
| Long settlement on the purchase | Gives you time to sell before you have to pay | Not every seller will agree |
| Short settlement on your sale | Lines the two dates up | Your buyer has to agree too |
For how conditions and dates fit together, see what happens after your offer is accepted and the due diligence clause.
What are the steps to get bridging finance?
- Get an appraisal on your current home from an agent, or a registered valuation.
- Talk to me before you make an offer, so we know the peak and end debt a lender will accept.
- Get approval in principle for the bridge and the end loan together.
- Make your offer on the new home, with the right conditions.
- List or sell your current home and agree settlement dates if you can.
- Settle the purchase using the bridging loan.
- Settle your sale. The proceeds repay the bridge, and your loan moves to its normal structure. Now’s the time to decide on fixed or floating.
Common questions
How long can bridging finance last?
It’s short term, usually limited to months rather than years, and the limit is set by the lender. A closed bridge is typically only needed until your sale settles.
Can I get bridging finance if my house isn’t sold yet?
Sometimes. That’s called open bridging, and fewer lenders offer it. You’ll need good equity, affordable end debt and a realistic sale plan.
Is bridging finance expensive?
The rate is often similar to or a bit above normal home loan rates, but you’re paying interest on two properties for a while, and there may be extra fees. The total depends on how long the bridge runs.
What happens if my house doesn’t sell in time?
You’d need to talk to the lender about extending the bridge or reducing the price. That’s why a conservative sale price and a buffer matter before you buy.
Do I need 20% equity for bridging finance?
Many banks look for peak debt at or below 80% of the combined value of both homes, but policies vary, so check with your lender or me. They also check that the end debt after the sale fits their normal rules for the new home.
Can I buy at auction using bridging finance?
Yes, but get the bridge approved before auction day. An auction bid is unconditional, so you can’t make it subject to selling your home.
Can I use a non-bank lender for bridging?
Yes. Some non-bank lenders offer short-term bridging when a bank won’t, usually at higher rates and fees. It can work as a short fix with a clear exit.
Is a bridging loan the same as bridging finance?
In practice, yes. Both mean short-term lending that lets you buy before your sale settles. Lenders and brokers use the terms interchangeably. For the cost side, see the bridging loan cost worked example.
How much interest does a four-month bridge cost?
It depends on the amount, the rate and how long the bridge runs. As an illustration only, $1,100,000 of bridging at 6.40% for four months is about $23,500 in interest. The worked example sets out the full figures and what a late sale does to them.