A bridging loan is a special type of short-term loan designed to cover the purchase price of a second property and give you time to sell your existing property, even if you already have a mortgage. This loan type allows you to buy a new property without having to sell your existing property first. It essentially creates a financial “bridge”, allowing homeowners to traverse the gap between buying and selling. Lenders work out the size of the loan by adding the value of your new home to your existing mortgage, then subtracting the likely sale price of your existing home. What you are left with is your “ongoing balance” which represents the principal of your bridging loan. Lenders will then assess your ability to make mortgage repayments on this balance.

Lenders use both properties (old and new) as security, and you will have one loan to cover both the existing debt and the new purchase. When your current home is sold, the original mortgage is discharged, and the bridging loan is then often converted into your chosen home loan for your new property. After your property is sold, you simply continue to make normal home loan repayments, plus the compounded bridge loan interest, on the new loan.