Victorian families turn to bridging loans during cost of living crisis – realestate.com.au

Victorian families are increasingly looking for alternative ways to purchase a home due to the skyrocketing cost of living and interest rate increases.

Melbourne-based Mortgage Choice broker David Thurmond said the past 24 months had seen a dramatic increase in demand for bridging finance, especially from large buyers aged 35 to 50 who have children.

It comes as Victoria’s auction market gears up for a pre-Christmas rush, with 1,422 homes set to go under the hammer this week, according to PropTrack, after the state recorded a 59 per cent clearance rate last week.

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Bridge loans typically provide credit to bridge the time gap, usually less than twelve months, between homeowners purchasing a new home before selling their existing home.

Mr. Thurmond said he had only made about 10 of these types of loans during his first 15 years as a broker, but that number had increased to about 150 in the past five years.

Interest rates have been rising since the Covid pandemic, rising costs of living and the Victorian Government’s higher land taxes, introduced in 2024, have meant many families who had traditionally kept their old homes as investment properties could no longer afford to do so, Mr Thurmond said.

“I think the land tax issue is probably a 5 percent justification, while 95 percent is higher living costs and lower borrowing capacity because of higher rates,” he added.

“I definitely think the higher interest rates have really discouraged people from keeping their existing homes.”

Mortgage choice broker David Thurmond says bridging loans have become much more popular in the past five years.

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Mr Thurmond says homebuyers should seek pre-approval for a bridge loan before purchasing a new home, rather than doing things the other way around. Photo: Jake Nowakowski.

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Ray White chief economist Nerida Conisbee said a big part of the reason for the increase in demand for bridge loans was a change in the way lenders historically deprived customers of the service.

“I think it’s an improvement in the supply of bridge financing,” she said.

“It used to be a very bad financial product and now what is offered is much more acceptable to people.”

The economist said that over the past twelve to eighteen months there has been a trend towards more acceptable bridging loan terms for borrowers.

Ray White chief economist Nerida Conisbee says bridge loans today typically offer better terms to borrowers than they did in the past.

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In November, a Mortgage Choice survey of 1,000 Australians found 46 percent were unfamiliar with bridging finance.

Mortgage Choice has also announced a new bridging loan, Freedom Move, in partnership with Athena Home Loans, which gives people up to 12 months to sell their old property with no repayments on the bridging loan until settlement.

Mr Thurmond said it is important that people considering a bridge loan organize a pre-approval before purchasing a new home – which sounds like common sense but is not always top of mind for buyers.

Many Victorian homebuyers need to sell their existing home before upgrading to a larger home in order to have enough money for a deposit.

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“The other thing we need to do is make sure you have received a 10 percent deposit for your purchase,” he said.

Many clients are equity rich in the sense that they have between $400,000 and $500,000 of value in their home, but don’t have the 10 percent cash down payment needed to purchase a new home, which could amount to a six-figure sum, he noted.

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