Bridging Loans for Downsizers: How to Buy Before You Sell

Downsizers often face a timing problem rather than a money problem. The smaller home you want appears before your current home has sold, and you are not prepared to drop your price to make the dates line up.

A bridging loan is one way to cover that gap. It is a useful tool, and an expensive one if it is used for the wrong reasons, so it is worth understanding properly.

The problem bridging solves

You find the right smaller home, put a deposit on it, and settle before your current home sells. Bridging finance carries the new purchase in the meantime, so you are not forced to sell in a hurry or move twice.

How a bridging loan works

• It is a short term loan, commonly up to twelve months
• It is usually secured against the home you are selling, and sometimes against the new purchase as well
• Lenders look at peak debt, the total owing while you hold both, and end debt, what remains afterwards
• Interest is often capitalised, meaning it is added to the loan and paid out of the sale proceeds, at a rate higher than a standard home loan
• The exit is the sale of your current home, which repays the bridge
• Lenders want evidence of the exit: a signed contract, or an appraisal from a local agent plus a realistic plan and price

What it costs

A higher interest rate, establishment and exit fees, valuation costs, plus holding costs on two properties at once. If the smaller home is bought before the old one sells, you also carry rates, insurance and maintenance on a house nobody is living in. Stamp duty applies to the new purchase as usual, and your accountant is the right person for questions about the main residence exemption.

The traps for downsizers

• Smaller does not always mean cheaper. A well located home in a tight suburb can cost as much as the family home you are leaving.
• Serviceability still applies. Lenders assess income and age as well as assets, and a retirement income changes the calculation.
• A slower sale stretches the bridge, and the cost grows with it.
• Two moves, storage and rent add up quickly if settlement on the new home comes early.

The calmer alternative

If the right home is not on the market yet, sell first. Negotiate a longer settlement, or a rent back period with the buyer, and buy afterwards with your numbers already confirmed. That is usually cheaper than bridging and avoids holding two properties. Bridging earns its place when the right home appears first and you do not want to lose it.

Frequently asked questions

Can I get a bridging loan if I am retired?

Sometimes. Lenders look at income, assets and how the loan will be repaid. A broker can test what is realistic before you make an offer, rather than after.

How long does a bridging loan last?

Commonly up to twelve months, with shorter terms at some lenders and the option to extend at a cost. Plan for a slow sale rather than a quick one.

Do I pay interest during the bridge?

Often it is capitalised into the loan and cleared at settlement of your sale. Some borrowers prefer to pay it as they go, which keeps the end debt lower.

What if my home does not sell in time?

You can usually extend the term for a fee, or refinance to a standard loan if you can service it. Work out that fallback before you sign, not when the deadline arrives.

Next step

Have the Sorted Mortgages team model your peak and end debt before you make an offer, so you know the real cost of the bridge. If the smaller homes we list are what you are looking for, start with the downsizer packages or send us an enquiry and we will help you time it.