23 Apr 2019

Its not uncommon to outgrow your first home or to simply want to upgrade. But to make the transition to one property to another is not always a straightforward undertaking, though it can be easier than you think. There are two main avenues that are often used when a purchaser is buying and selling at the same time – Bridging Finance, or a Subject Sale Contract. Here is what they both entail.

Bridging Finance:

A popular option, bridging finance is where an additional loan is taken out on top of your current loan to purchase a new property, with the intention to sell the existing home and pay out its corresponding debt. In most cases only interest is charged on the new loan and is added to the overall loan amount with there being no requirement to make repayments on the new loan until the existing property is sold.

Bridging finance can work well though this option is not without some drawbacks. For instance, the lender will most likely require the existing home to be sold within six months. Consequently, you may have to sell for less than anticipated if the market becomes less buoyant. Bridging loans are generally priced higher than their conventional counterparts, furthermore, not all lenders offer a bridging loan option and if your lender doesn’t, a refinance will be necessary, adding another layer to the process.

Overall bridging finance is a viable option and can be relatively seamless with the right guidance and planning.

“Subject Sale” Contract

If you do not feel comfortable having the pressure to sell your existing home after purchasing a new one and therefore holding two properties at once, another option is to make your offer to purchase “subject to the Sale” of your current home. This is a common strategy which sees the purchaser going straight from owning one property to another. If your existing loan has the feature of “portability” you may be able to simply substitute one security property for another come settlement time instead of fully discharging one loan and taking out another. However, your mortgage broker will be able to guide you on what is the preferred option based on your unique circumstance.

The potential disadvantage of this option is the very real prospect of not being able to sell your property in the allotted time frame given under the terms of the contract. Furthermore there is often a provision in the contract, the 48 Hour Clause,  which involves the seller continuing to market the property and if they consequently receive a more favourable offer you will have 48 hours to have your finance in order or they will proceed with the alternate purchaser.

Whereas the Bridging option will allow for an easier transition from one property to another, the “subject sale” option will require you to most likely have a simultaneous settlement where the sale and the purchase occur basically at the same time so you have a limited time-frame to vacate one property and move to the new one.

If purchasing a new home is on your radar screen there is no need to be daunted by the prospect of having to sell your existing home first. Many folks are discouraged by the thought of the uncertainty of the period of transition and perhaps the need to rent in between the sale and purchase time. This does not necessarily need to be the case. Talk to one the mortgage brokers at Blackburne Mortgage Broking for more information. We have helped clients with each scenario and have the knowledge required to assist you in identifying a strategy that’s right for you.

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