Help guide
Bridging loans in Australia
How peak debt and end debt work when you buy before you sell, why lenders discount an unsold property, and the APRA exemption bridging finance carries.
Peak debt and end debt
Short-term finance that lets you settle a purchase before your existing home sells, structured and priced around two numbers. Peak debt is what you owe at the high point: your existing loan balance, plus the new purchase price, plus stamp duty and costs, less any cash you contribute. End debt is what remains once sale proceeds are applied, and it is the loan you actually have to live with.
A worked example. You owe $300,000 on a home you expect to sell for $900,000 and buy for $1.1m with $60,000 of duty and costs, so peak debt is $1.46m. If the sale achieves $900,000 with $25,000 of agent and legal costs, $875,000 comes off and end debt is $585,000. The lender assesses you on end debt at your rate plus the 3 percentage point buffer, and separately tests peak debt against its maximum LVR across both securities.
Closed versus open bridging
Lenders treat the two situations very differently. Closed bridging means your existing property is already under an unconditional contract with a known settlement date, so the risk is timing rather than price and the terms reflect that. Open bridging means the property is not yet sold, sometimes not yet listed. Fewer lenders offer it, terms run six months rather than twelve, and the assessed sale value is discounted.
That discount is where plans break. Lenders commonly assess an unsold property at 80% to 90% of its appraised value, so a $900,000 expectation may be tested at $765,000 when end debt is calculated. In a market where Cotality’s August 2026 reading was the fifth consecutive monthly fall and values sat 3.6% under the March peak, the haircut is doing exactly the job it was designed for.
How the interest is charged
The usual structure is interest-only on peak debt for the bridging period, with interest capitalised — added to the loan rather than paid monthly — so your cashflow only carries the repayment on the end debt portion. On $1.46m of peak debt at 7% for four months, capitalised interest is roughly $34,000, which comes out of the sale proceeds and pushes end debt higher if the sale runs slow.
Pricing varies more than on standard loans. Some major lenders bridge close to their standard variable rate, while specialist short-term lenders price materially higher and add establishment fees of around 1% to 2% of the facility. Ask for the rate, the full fee schedule, what happens at the end of the term if the property has not sold, and whether unpaid capitalised interest attracts a default rate.
The APRA exemption worth knowing about
Bridging finance is one of three categories exempt from the debt-to-income limits APRA activated on 1 February 2026. Those limits stop a lender writing more than a fifth of its new owner-occupier book, and a fifth of its new investor book, at six times income or higher, with the two books counted separately. They are a quota on the bank rather than a decline threshold for you.
The exemption matters because peak debt produces enormous headline ratios by construction — $1.46m of borrowings against a $180,000 household income is more than eight times, which would otherwise eat into the lender’s quota. Construction of a new dwelling and the purchase of a newly erected dwelling are exempt on the same reasoning. None of it relaxes serviceability: end debt is still tested with the full buffer applied.
What happens when the sale is slow
This is the risk that actually materialises. Terms are typically six months for an unsold property and up to twelve where a contract exists. If settlement has not happened by then, the options are an extension at the lender’s discretion and often at a higher rate, a price reduction to meet the market, or the lender exercising its power of sale. Interest capitalises throughout, compounding against a shrinking equity buffer.
Two protections are worth building in beforehand. Price the property to sell inside the bridging term rather than to test the market, because a five-month campaign inside a six-month facility leaves no room for a failed settlement. And model end debt at the lender’s discounted sale value rather than your agent’s appraisal — if the plan only works at the appraisal, it has no margin at all.
The alternatives to bridging
Bridging is not the only way to solve a timing mismatch. A simultaneous settlement, where both contracts settle the same day, costs nothing extra but needs both parties to agree dates. A long settlement on the purchase, or a short one on the sale, achieves the same thing contractually. A deposit bond covers the deposit without cash. Selling first and renting removes the risk entirely at the cost of moving twice.
Which fits depends on how certain your sale is and how much the replacement property matters. Not every lender offers bridging, and policy varies enough that this is a lender-selection exercise before it is a pricing one. Nothing here is a credit quote or personal advice, and bridging is the one product where Azure Home Loans models the worst case first.
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FAQ
How does a bridging loan work in Australia?
The lender funds your new purchase while you still own the existing property, holding both as security. You are assessed on end debt — what remains after sale proceeds are applied — while interest on the higher peak debt is usually capitalised rather than paid monthly. When the old property settles, the proceeds reduce the loan and the balance converts to a standard home loan.
How long does bridging finance last?
Typically six months where the existing property is unsold and up to twelve where it is already under an unconditional contract. Extensions sit at the lender’s discretion and often carry a higher rate. Because interest capitalises for the whole period, a term that expires before your sale settles is the main way bridging turns from costly into expensive.
What is peak debt on a bridging loan?
Your total borrowings at their highest point: the existing loan balance plus the new purchase price plus stamp duty and costs, less any cash you contribute. On a $300,000 existing loan and a $1.1m purchase with $60,000 of costs, peak debt is $1.46m. The lender tests that figure against its maximum LVR across both securities before approving anything.
Do I need to have sold my house before getting a bridging loan?
No, but it changes the product and the terms. Closed bridging, where an unconditional contract exists, has more lenders, longer terms and better pricing. Open bridging, where the property is unsold, comes from fewer lenders on shorter terms, and the sale value is usually discounted to 80% to 90% of appraisal when the lender tests your end debt.
Is bridging finance more expensive than a normal home loan?
Usually, though less so at major lenders than people expect. Some banks bridge close to their standard variable rate, while specialist short-term lenders price materially higher and add establishment fees of around 1% to 2% of the facility. The larger cost is generally capitalised interest on peak debt — roughly $34,000 over four months on $1.46m at 7%.
Does bridging finance count towards APRA’s debt-to-income limits?
No. Bridging is one of three exemptions from the debt-to-income limits APRA activated on 1 February 2026, alongside construction of a new dwelling and purchase of a newly erected dwelling. Those limits restrict how much of a lender’s new lending can sit at six times income or above; they do not cap an individual borrower. Serviceability testing is unaffected.
What happens if my house does not sell during the bridging period?
Interest keeps capitalising and the lender’s options open up. You can request an extension, usually discretionary and often at a higher rate, reduce the asking price to meet the market, or in the worst case face the lender exercising its power of sale. This is why lenders discount an unsold property when testing end debt, and why pricing to sell inside the term matters.
Can I use bridging finance for an investment property?
Some lenders allow it, but the panel is narrower and the assessment tighter. Purpose and repayment source are examined closely, and maximum LVRs on peak debt are often lower than for owner-occupied bridging. Investors should also factor in that from 1 July 2027, losses on established residential property acquired after 12 May 2026 will be quarantined rather than offset against other income.